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.
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,