UK economic growth is showing some signs of slowing

We advance on quite a bit of UK economic data today and in a link to yesterday’s article there is news to make  Gertjan Vlieghe of the Bank of England even more gloomy. It comes from the housing market.

House prices in the three months to March were 0.1% higher than in the previous quarter; the lowest quarterly rate of change since October 2016. The annual rate of growth fell further; to 3.8% from February’s 5.1%, the lowest rate since May 2013. ( Halifax).

The date given is significant as it is just before the Bank of England launched its initiative to ramp house prices called the Funding for Lending Scheme. Officially this was supposed to boost business lending whereas the reality was that mortgage rates fell quite quickly by over 1% and the total drop was around 2% according to the Bank of England. The UK house market responded in it usual manner to such stimulus. If we stay with the Bank of England it will no doubt be disappointed that its latest banking and house price subsidy scheme called the Term Funding Scheme has not worked in spite of the £55 billion provided.

By contrast I welcome this news which is being reported by more than one source and regular readers will be aware I was expecting it. Even the Halifax itself briefly joins in.

A lengthy period of rapid house price growth has made it increasingly difficult for many to purchase a home as income growth has failed to keep up, which appears to have curbed housing demand.

An extraordinary example of this is given from the London borough of Haringey when houses have “earnt” much faster than their owners salaries/wages.

House prices in the borough increased by an average of £139,803 over the last two years, exceeding average take-home earnings in the area of £48,353 over the same period – a difference of £91,450, equivalent to £3,810 per month.

What could go wrong?

February was not a good month for the UK economy

This morning’s data releases show that we were not at our best this February.

In February 2017, total production decreased by 0.7% compared with January 2017 with falls in all four main sectors, with electricity and gas providing the largest downward contribution, decreasing by 3.4%.

It is with a wry smile that I note that like the poor numbers for Spain also released this morning a familiar scapegoat takes the rap.

The monthly decrease in electricity and gas was largely due to falls in both electricity generation and in the supply and distribution of gas and gaseous fuels; this was largely attributable to the temperature in February 2017 being 1.6 degrees Celsius warmer than average.

Manufacturing output also fell by 0.1% as the Pharmaceutical industry continued its erratic pattern and drove the numbers yet again.

The deficit on trade in goods and services widened to £3.7 billion in February 2017 from a revised deficit of £3.0 billion in January 2017, predominantly due to an increase in imports of erratic goods;

This was added to by this.

The largest revision was to exports, with a downward revision of £1.3 billion in January 2017. This was mainly due to a revision to the exports of erratic commodities (down by £1.0 billion).

Some of the problem is the ongoing issue of how the UK’s gold trade is measured. Frankly the efforts are not going so well. Better news came from this revision as we see that we both exported and imported more.

Since the last UK trade release, there have been upward revisions across both exports and imports of trade in services throughout the 4 quarters of 2016.

Whilst I continue to have little confidence in the numbers the official construction series had a weak month as well.

output fell by 1.7% in February 2017 in comparison to January 2017……infrastructure provided one of the main downward pressures on output in February, decreasing by 7.3%.

Taking some perspective

Underneath this some of the recent trends remain good. For example if we look at manufacturing.

In the 3 months to February 2017, manufacturing increased by 2.1% (unchanged from the 3 months to January 2017), continuing its strongest growth since May 2010……. ( and on a year ago) manufacturing providing the largest contribution, increasing by 3.3%.

This has been driven by a combination of the transport industry, textiles, machinery and computer equipment.

Within this sub-sector, the manufacture of motor vehicles, trailers and semi-trailers rose by 14.4% compared with February 2016.

This drove production higher so that it is 2.8% higher than a year ago although North Sea Oil & Gas pulled it lower.

If we move to the trade picture and look for some perspective we see this.

In the 3 months to February 2017, the deficit on trade in goods and services narrowed to £8.5 billion, reflecting a higher increase in exports than imports, mainly due to increases in exports of machinery and transport equipment, oil and chemicals;

So the by now oh so familiar deficit! But a little lower than before. We should remember that we had a relatively good end to 2016.

The current account deficit improved in Quarter 4 2016, mainly due to an improved primary balance and an improved trade in goods position.

However we now wait for the March data as another weak month would be the first turn down in the UK economy for a while. Should we see that then we will be even further away from regaining the pre credit crunch position.

both production and manufacturing output have steadily risen but remain well below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008 by 6.7% and 3.0% respectively in the 3 months to February 2017.


This of course is one of the problem areas of the post credit crunch world and whilst we have some the problem is far from solved.

Productivity – as measured by output per hour worked – increased by 0.4% in Quarter 4 (Oct to Dec) 2016, following growth of 0.2%, 0.3% and 0.3% in the 3 preceding quarters. As a result, labour productivity was around 1.2% higher in Quarter 4 2016 than in the same period a year earlier and grew consistently over 2016.

Household Debt

I think the chart not only speaks for itself but is rather eloquent.



We have seen the first series of weak numbers from the UK economy since the EU leave vote. Production fell in January and that has now been repeated in February as even manufacturing saw a dip. If we look back the services sector had a disappointing January so the expectations for the NIESR GDP estimate later are likely to cluster around 0.4%. Of course the Bank of England will be watching all of this and perhaps especially the weaker house price data.

As ever the numbers are erratic and we have only part of the picture. On the optimistic front the business confidence figures for all out main sectors showed growth in March. In fact the services data was strong.

March data pointed to a rebound in UK service sector growth, with business activity and incoming new work both rising at the strongest rates so far in 2017. Survey respondents also remained optimistic about the year-ahead business outlook,

Fingers crossed!



19 thoughts on “UK economic growth is showing some signs of slowing

  1. Great article as always Shaun.

    I love the way halifax try to spin the figures. Constantly jumping from QTR to YoY and monthly in an attempt to keep the figures positive. It reminds me of the phoney war before the last crash.

    • Hi Anteos and thanks.

      They do but the bit that gets me is their house price to earnings ratio which was ~5.5 on the chart. . If we look at the average price it is £219,755 and according to the last UK main survey ( ASHE) average earnings were ~£28k or around 7.8!

    • At 3% , it would be a rate that is low both nominally and by comparison to the medium-distance past, historically low too. What coudld be the issue with using this control?

      • You could even argue, given the uncertainty of the Brexit negotiation that a 3% rate wouod not necessarily attract an inflow of capital from overseas…..

        • I think the base rate should never have been cut below 2% in the first place; but TPTB have always favoured life support over radical surgery.
          Now we know we can survive on life support. We’ve done almost 10 years, so why not 20 or 30?
          CBs get gloomy simply at the thought of a future without life support even thought the patient is drowning in debt.

          “I wish I hadn’t cried so much!’ said Alice, as she swam about, trying to find her way out. `I shall be punished for it now, I suppose, by being drowned in my own tears! That WILL be a queer thing, to be sure! However, everything is queer to-day.”

  2. We have not had a slowdown or recession for some years; we are overdue.

    Add to this the fact that demographics has begun to assert itself and the word “slowdown” seems all too plausible. In my view the only reason we have kept going this long is because of low interest rates and lax borrowing standards, evidenced as you say by the growing debt mountain. However, as you rightly point out, many are getting completely tapped out and simply can’t borrow more so at some point the house of cards we call the economy is going to wobble at the least and, quite possibly, suffer a more serious bout of weakness.

    The point about demographics has yet to get through and what this means is a lower secular rate of growth going forward. This not only affects the domestic economy but also that of our trading partners. The core demographic in Germany (by core I mean the 25-54 age group which drives economic growth) has been in decline since 1995; this is not a new issue but the effects have been masked by the low DM entry rate into the Euro and the Hartz reforms, all this boosting exports. This issue also applies to many other of our trading partners. Sooner or later the penny will drop and the structural and intractable nature of these problems will cause a great deal of angst. The World going forward is going to be nothing like that we have left behind, despite what the media says.

    • Hi Bob J

      The central bankers keep putting the next slow down on hold. Mark Carney was so keen to do so last August he cut the UK Bank Rate to below the level he had previously claimed was the “lower bound”. Somehow he found the intellectual flexibility to limbo under it.

      As to your demographics point I think it was Forbin who first suggested that 2% economic growth is the new normal as opposed to the hoped 3% pre credit crunch.

  3. The Bank of England equates a drop in house prices to a weakening in the economy, and so will consider lower rates or more QE, which leads to higher house prices, putting further strain on household budgets for new entrants, which leads to a further fall in demand which requires more stimulus, a never ending circle of insanity.

    Meanwhile the real economy is being bled dry by falling real incomes and general inflation( which in many essentials is close to 10%p.a)as the proportion of monthly income being eaten up by the housing monster grows every month.

    • Hi Kevin

      That is why the UK establishment fight so hard to keep house prices out of the consumer inflation basket. It allows them to claim all of the rise as growth and the same old cycle starts again. The truth is that first time buyers and those who want to trade up are affected by inflation and that should be measured.

  4. Shaun,

    Bill Mitchell’s blog yesterday highlighted OBR forecasts for household debt to disposable income of 165 by 2019 so HMG is relying on consumer debt increasing. Similarly recent Paul Lewis ( of BBC moneybox fame) blog noted budget duty rises based on estimate of inflation of 4.1 % by year-end. General slowdown in UK seems a given.

    • Hi Chris

      That reminds me of the first rule of OBR club! However it has suited the Bank of England to boost unsecured credit and as I wrote yesterday some will be looking for further easing if the economy slows. An old word “stagflation” may come into play for a while which poses questions as bond markets for example are in completely the wrong place for it.

      • I try my best not to comment on your UK analysis these days as in the
        light of Brexit it’s all academic anyway but couldn’t contain myself tonight.

        I should say we are definitely in for stagflation if you look at this –

        It is clear that the bulge in narrow money growth at end 2014 and spanning 2015 was always going to present inflation in 2018 and maybe as early as mid 2017 as I said here :- “My cautionary note is the inevitable inflation “shock” (but not to me) due now in mid 2018. It’s already too late (or perhaps can’t come soon enough for the establishment?) the BOE should have raised by this October gone. Inflation is coming next year and unless commodities continue falling (but they can’t go below zero can they?!!) the UK is in for good solid big dose of it in 2018. ”

        At that time I had no knowledge of the Brexit outcome. This is THE secular trend to which Bob J refers but has missed and has likely contributed to people cutting back on spending intentions due to Brexit uncertainty (as may be seen by the collapse in M1 from July 2016 onwards in the chart) and potential price rises due to FX volatility (which also commenced from late June 2016 onwards) following the Brexit vote.

        I now expect solid inflation from mid 2017 – end 2018 due to the bulge in M1 at end 2014 through 2015 accompanied with an ever slowing economy caused by the cyclical component of shrinking M1 since last summer/Autumn, so due to start making itself felt in Spring/Summer 2017 in the form of a slowdown with Brexit uncertainty providing a further firm push up on inflation via the FX effect following th evote and, indeed, a slowdown as people adjust their spending intentions following the vote with the consequences of the vote to carry on for years to come in the form of a stagnaying/shrinking econiomy poppinginand out of inflationary episodes. Welcome to the future or as Johnny Rotten said in God save the Queen”there is no future,in Englands dreaming” .

        For myself, I march tothe tune of the boys from Madness in Madness – “It’s gonna be rougher, It’s gonna be tougher, pa-da-da, pa-da-da
        But I won’t be the one who’s gonna suffer
        Oh no, I won’t be the one who’s gonna suffer”

        Time to consider a rotation into bonds and taking a short position on the Ftse all share……. .

  5. This country is in great danger until recently debt addiction and the dire financial position that will soon be upon us was my main concern.
    Our growth has been fake wages are falling ,prices rising,debt rising,currency devalued.
    I now think that the military industrial complex much more likely to solve the debt problem and be responsible for the deaths of hundreds of millions in the process.
    The media continues to peddle so called news on both economic and political fronts,which could have come from George Orwell’s 1984.

    • Hi Private Fraser

      To give her some credit Pippa Malgrem has been saying for a while that military spending will be like QE4 for the US. After this morning’s events she looks more likely to be proven correct.

      • Thanks for the info regarding Pippa Mamgrem have watched several interviews with her in the past for someone who was an advisor to GW Bush (that must have been a hard job )she is quite an interesting character normally anyone connected with GW would illicit a negative reaction from me but she is better than most.
        However to use the old cliche if aliens landed and looked at US presidents Reagan GW Bush ,Trump they would be shocked however if we change President to Puppet they would understand if the puppet gets ideas above his station they cut the strings Kennedy and Nixon.
        On the economic front there is much to be concerned about if we look at history when things are bad economically the evil doers take us to war,it is their default position.

  6. I’d say that chart speaks for Carney more than itself.

    History will show this incompetent POS to be just that.

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