Today brings us what is called a theme day by the UK Office for National Statistics as we get data on production, manufacturing and trade. This comes at a time when the data will be especially prodded and poked at. This is mainly driven by the fact that there have been hints of an economic slow down both in the UK and in the Euro area. Added to that we have seen rising tensions around Syria and the Middle East which have pushed the price of a barrel of Brent Crude Oil above US $70 which if sustained will give us another nudge higher in terms of cost push or if you prefer commodity price inflation. If we return to yesterday’s topic of Bank of England policy we see the potential for it to find itself between a rock and a hard place as a slowing economy could be combined with some oil price driven inflation.
This opened with a worrying note although of course the issue is familiar to us.
In the three months to February 2018, the Index of Production decreased by 0.1% compared with the three months to November 2017, due to a fall of 8.6% in mining and quarrying, caused mainly by the shutdown of the Forties oil pipeline within December 2017.
If we move to the February data we see that it rose but essentially only because of the cold weather that caused trouble for services and construction.
In February 2018, total production was estimated to have increased by 0.1% compared with January 2018; energy supply provided the largest upward contribution, increasing by 3.7%.
If we look into the detail we see that the colder weather raised production by 0.43% meaning that there were weaknesses elsewhere. Some of it came from the oil and gas sector where in addition to some planned maintenance there was a one-day shut down for the rather accident prone seeming Forties field. But there was also something which will attract attention.
Manufacturing output decreased by 0.2%, the first fall in this sector since March 2017, when it fell by 0.4%. Within this sector 7 of the 13 sub-sectors decreased on the month; led by machinery and equipment not elsewhere classified, which fell by 3.9%, the first fall since June 2017, when it decreased by 4.9%.
This has been a strength of the UK economy in recent times and concerns about a possible slow down were only added to by this.
It should be noted that the growth in this sector of 0.1% during January 2018 and published last month, has been revised this month to 0.0%, further supporting evidence provided in the January 2018 bulletin of a slow-down in manufacturing output.
Although our statisticians found no supporting evidence for this there remains the possibility that the bad weather played a role in this. Otherwise we are left with an impression of a manufacturing slow down which does fit with the purchasing managers indices we have seen. The annual comparison however remains good just not as good as it was.
in February 2018 compared with February 2017, manufacturing increased by 2.5%.
Also there were hopes that we might regain the previous peak for manufacturing output which was 106.8 in February 2008 where 2015 = 100 but we scaled to 105.4 in January and have now dipped back to 105.2. The situation in production is somewhat worse as we are still quite some distance from the previous peak which on the same basis was at 111.1 in February 2008 and this February was at 104.8. The issue is complicated by the decline of North Sea Oil and Gas but overall those are numbers which look like a depression to me especially after all this time which one might now call a lost decade.
We traditionally advance on these numbers with some trepidation after years and indeed decades of deficits on this particular front. So let us gather some cheer with some better news.
Comparing the 12 months to February 2018 with the same period in 2017, the total trade deficit narrowed by £12.9 billion to £27.5 billion; the services surplus widened by £11.1 billion to £108.3 billion and the goods deficit narrowed by £1.8 billion to £135.8 billion.
Tucked away in this was some good news and for once a triumph for economics 101.
Total exports rose by 10.4% (£59.4 billion) to £627.6 billion compared with total imports, which increased by 7.6% (£46.5 billion) to £655.1 billion.
In true Alice In Wonderland terms our exports have to do this to make any dent in our deficit because the volume of imports is larger.
“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”
Both goods and services imports have responded well to the lower value of the UK Pound £ as well as being influenced by the favourable world economic environment.
Goods exports rose by 11.3% (£34.9 billion) to £345.0 billion ……..Services exports rose by 9.5% (£24.5 billion) to £282.6 billion
We rarely give ourselves the credit for being a strong exporting nation because it gets submerged in our apparent lust for imports.
As to the more recent pattern I will let you decide if the change below means something as it is well within the likely errors for such data.
The total UK trade deficit (goods and services) widened by £0.4 billion to £6.4 billion in the three months to February 2018
A little wry humour is provided by the fact that in terms of good exports our annual improvement was due to exports to the European Union. However the humour fades a little as I note our official statisticians have no real detail at all on our services exports which is a great shame as they are a strength of our economy.
After the cold spell in February this was always going to be a difficult month.
Construction output continued its recent decline in the three-month on three-month series, falling by 0.8% in February 2018………Construction output also decreased in the month-on-month series, contracting by 1.6% in February 2018, stemming from a 9.4% decrease in infrastructure new work.
In the circumstances I thought this was not too bad although this may have left me in a class of two.
You see the past is better than we thought it was which also confirms some of the doubts I have expressed about the reliability of this data.
The annual growth in 2017 of 5.7% is revised upwards from the 5.1% growth reported.
So it is not in a depression but has entered a recession.
There is a fair bit to consider as we note that any continuation of the recent falls will see manufacturing continue its own lost decade as we note that overall production seems trapped in one with little hope of what might be called “escape velocity”. That means that the Bank of England faces a scenario where the picture for this particular 14% of the economy has seen the grey clouds darken. By contrast construction went from a really good phase into a recession which the bad weather has made worse. I would expect the weather effect to unwind fairly quickly but that returns us to a situation which looked weak,
This leaves the expressed policy of the “unreliable boyfriend” in something of a mess as his forward guidance radar seems to have looked backwards again. Perhaps his new private secretary James Benford will help although I note his profile has been so low Bloomberg had to look him up on LinkedIn, I hope they got the right person. Also life can be complex as for example Russians in the UK might be thinking as they go from threats of financial punishment to seeing the UK Pound £ rally by 2% today and by over 10% in the past week to around 91 versus the R(o)uble .
Let me remain in the sphere of the serially uncorrelated error term by congratulating Roma on a stunning win last night.