The UK economy boomed in July

Today brings us a raft of data on the UK economy including something relatively new which is the monthly update or economic growth or GDP (Gross Domestic Product). This is part of the new structure where we get the quarterly numbers a couple of weeks later than we used to, which is a good development in terms of them being based on more hard data. But it is not clear to me that having monthly GDP adds an enormous amount to what we know with the data of it being somewhat erratic and perhaps plain wrong.

Anyway we will be able to compare the number for July with the business surveys we have which in the case of the Markit PMI have told us this.

No change is expected at Threadneedle Street on Thursday when the Bank of England meets to set interest rates. The resilient pace of growth signalled by recent PMI surveys will have come as some relief after the August rate hike, but it seems likely that the Monetary Policy Committee will await further news on the economy amid the intensifying Brexit process before tightening again. Rates could rise sooner than March of next year if clarity on the Brexit deal comes earlier, however this seems an unlikely scenario.

Actually they have omitted to point out that they believe the UK economy will grow by 0.4% in this quarter although the jury is out as to whether that is resilient. Compared to the weak monetary data it is but they are not followers of it. Also is there anyone who believes the Bank of England might raise interest-rates at its policy meeting on Wednesday/Thursday? Frankly the list of people who believe it will raise any time soon might not stretch much beyond Markit.

If we stay with the Bank of England its Governor Mark Carney will have smiled at this from the economics editor of the Financial Times over the weekend.

The gambit worked. Britain soon regained economic stability.

Yes he apparently single-handedly restored the UK economy after the EU Leave vote a view I find simply breath-taking. But wait there was more.

The weeks after the referendum defined the reputation of the Canadian at the helm of the BoE and have now earned him two extra years in the post.

Yet later came rather a list of problems which exemplify the phrase “unreliable boyfriend”.

Too often his predictions have proved false. He promised to serve only five years because there are limits to the time anyone can cope with such a punishing job, but will now stay for seven; he said a Leave vote risked a recession that has not materialised, and wrongly predicted that the first rise in UK interest rates above 0.5 per cent was looking likely at the end of 2014.

A more rational and composed assessment would be that yes he did his job on the day after the EU Leave vote but that there is a much longer list of failures. Also I note that the FT has omitted pumping up house prices as one of his failures. Added to that a failing that he was also criticised for in his time at the Bank of Canada is presented as a strength.

It is rare to find central bankers as willing to take a brave stance on important political questions.

Also it is nice of the FT to admittedly very belatedly confirm my long-standing view on his real objectives.

Having agreed to extend his term at Threadneedle Street, Mr Carney need not worry about the merry-go-round of international top jobs.

Did we miss the news that he had extended his term? If so someone needs to inform the Bank of England website.

Mr Carney has announced that he will serve to 30 June 2019

Good news for the UK economy

This morning has brought some sunshine for the UK economy.

Rolling three-month growth in July 2018 was the highest since August 2017, when it was also 0.6%. This continued a pickup from flat growth seen in April 2018.

As is regularly the case this was driven by the services sector.

with a rolling three-month growth of 0.6% in the services industries resulting in a large positive contribution. Production industries had growth of negative 0.5%, dragging on GDP growth. However, construction had a larger contribution to GDP growth than last month, with a large rolling three-month growth of 3.3%.

The strong construction performance rather nicely coincides with my own measure where I count the cranes along Nine Elms between Battersea Dogs and Cats home and Vauxhall Cross. This has risen to a record of 40 which does not count the 2 just before the Dog’s home nor the 6 the other side of Vauxhall Bridge.

Putting it chronologically this was driven by a strong performance in the month of July.

The month-on-month gross domestic product (GDP) growth rate was 0.3% in May 2018, 0.1% in June and 0.3% in July.

Whilst welcome this to my mind highlights a problem with monthly data. Do we really believe that as a pattern where we have two really good months and a poor one? The problems with highlighting monthly data are shown by an area which is a strength of the UK economy.

Within this industry, architectural and engineering activities was the largest contributor with a monthly growth of 4.4%, although this follows a month-on-month growth rate of negative 2.6% in June.

As you can see the June data was rather poor whereas if we take some perspective we note this.

 This industry has shown substantial growth over the past two years.

There is another area where a local guide is performing well as I note the Movie Makers vans and lorries currently residing in Battersea Park.

motion pictures, which increased by 4.1%, contributing 0.04 percentage points

Let us move on with only one cloud in our sunny skies.

Rolling three-month manufacturing growth to July was negative for the fifth consecutive rolling period at negative 0.1%.

Trade Wars

We advance on this data with some trepidation as it is a perennial problem for the UK.

The total UK trade deficit (goods and services) narrowed £1.4 billion to £3.4 billion in the three months to July 2018. Removing the effect of inflation, the total trade deficit narrowed £2.0 billion to £2.5 billion in the three months to July 2018.

If we look at this in terms of the good, the bad, and the ugly we see the following.

The total UK trade deficit (goods and services) narrowed £13.8 billion to £17.0 billion in the 12 months to July 2018. ………The main driver was the trade in services surplus, which widened £8.4 billion to £117.1 billion in the 12 months to July 2018; services exports rose £10.7 billion compared with £2.3 billion for imports………The goods deficit narrowed £5.4 billion to £134.1 billion in the 12 months to July 2018; exports of goods increased £20.2 billion, while imports of goods rose by a lesser £14.8 billion.

The good is plain to see via the improvements seen but that also illustrates the bad as even with good news we still have a deficit. The ugly part comes in when we note that our deficits have lasted not only for years but also for decades.

Comment

Today has brought good news on the UK economy and we should consider how much it changes our view on economic events. To my mind only a little as at least some of this is if you like a “catch-up” from the weak weather related data seen around the end of the first quarter. The overall view of around 0.4% quarterly growth still holds true as we wait to see what happens to the monetary data. As to the trade figures any improvement is welcome although I have ongoing doubts about their accuracy.

Moving to the Bank of England the GDP data will put a positive gloss on its August Bank Rate rise although of course it is supposed to look forwards and not backwards, as today’s data precedes it. Also I note an example of what the French call plus ça change, plus c’est la même chose. Remember this?

I have therefore decided that pre-release access to ONS statistics will stop with effect from 1 July
2017. ( National Statistician John Pullinger)

Whereas rather than being officially told they are now unofficially told or something like that.

, exceptional pre-release access for the Bank of England has been granted for this release.

Okay why?

would only be considered in exceptional circumstances, where denying such access would significantly impede the taking of action in the public interest.

As the policy meeting is this week I can see no such exceptional circumstances.

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21 thoughts on “The UK economy boomed in July

  1. I’d be much obliged if you could refrain from quoting the nauseating rag known as the FT when it is one of its many love-ins with Carney.
    There is only so much sycophancy that I can take on a Monday morning…

  2. so when will TM get to dump MC ?

    answer : never !

    We think we know his agenda , but we’re not privy to it …….

    our TBTF Banks need more cash – so where do they get if from now ?

    Forbin

    • Hi Forbin

      It seems that you are not the only person wondering that as over the weekend the New York Times ran a piece by this trio.

      “By Ben S. Bernanke, Timothy F. Geithner and Henry M. Paulson Jr.
      Mr. Bernanke is a former chairman of the Federal Reserve. Mr. Geithner and Mr. Paulson are former Treasury secretaries.”

      And you guessed it.

      “But in its post-crisis reforms, Congress also took away some of the most powerful tools used by the FDIC, the Fed and the Treasury. Among these changes, the FDIC can no longer issue blanket guarantees of bank debt as it did in the crisis, the Fed’s emergency lending powers have been constrained, and the Treasury would not be able to repeat its guarantee of the money market funds. These powers were critical in stopping the 2008 panic.”

      Also I note former IMF Chief Olivier Blanchard suggesting next time round the US Fed could buy equities…..

  3. Hello Shaun,

    if the trade figures are good the I ‘ll applaud as that’s more real than fiat hokus pocus we normally get

    as for “The overall view of around 0.4% quarterly growth still holds true as we wait to see what happens to the monetary data”

    well imputed it is and I suspect anything below 0..5% per quarter is not actual growth but a bumpy plateau …….

    We’ll see what happens in the next 6 months as normally we get a downturn 😉

    Forbin

    • Hi Forbin

      The monetary data suggests a downturn so fingers crossed. As to the trade figures they are of poor quality especially on the services side. I made that point to the Sir Charlie Bean review but not much seems to have happened. There was a flicker of more detail a while back but today’s reports has several breakdowns of goods trade and precisely none on services trade.

      Considering our reliance on services trade that is not far off a national scandal.

  4. Great blog as usual, Shaun.
    I see what you mean when you write “Do we really believe that as a pattern where we have two really good months and a poor one?” However, it is possible as the overall trend can be distorted by maintenance activities and so forth. It seems that the termination of maintenance activities were responsible for the strong growth in mining in July, after maintenance had caused declines in May and June. The monthly GDP releases for Canada concentrate on these monthly growth rates almost to the exclusion of all else, but the ONS release, wisely in my opinion, rather concentrates on the rolling quarterly growth rates. The public is given more timely information on output growth without being misled by transitory phenomena. You can see the obvious advantage of looking at rolling quarter growth rates if you compare it to an alternative quarterly measure: three-month growth rates. The three-month growth ratio is just the product of three monthly growth ratios. When you go from April 2018 to May 2018, the aberrant drop in real GDP of 0.2% in February exits the three-month growth rate, and it leaps from 0.0% to 0.5%, or to 2.0% if one annualizes it. The rolling-quarter growth rate has no such clear straightforward relationship to monthly growth rates and the February monthly growth rate doesn’t finally exit its measure until July 2018, when, as we can see, it has a far less dramatic impact than it did in May on the three-month growth rate.

    • Hi Andrew and thank you

      You are right about the mining “swing factor” although it is a much smaller impact on GDP here (1%) than in Canada. Looking at the GVA breakdown the main player in June was the “wholesale, retail and repair of vehicles and motor bikes” category (10.4% of GVA) which went in the three months in question 104.7, 104.1 and then 104.6. Indeed the oddest part of its sequence was the rise from 103.1 in April to 104.7 in May. In the past much of this would have been hidden to some extent in the quarterly numbers and I am still not clear that monthly GDP numbers add much value.

      That thought is reinforced by your latter points which show what some will no doubt do with the data which is cherry pick to suit a preconception.

  5. I lost faith in the FT long ago.

    A bit before I lost faith in the Bank of England (although the 60% of it’s pension pot it has invested in linkers shows it isn’t completely oblivious to inflationary concerns).

    • Hi Dutch

      The Bank of England also has 30% of its pension fund in corporate index-linked securities that vast majority of which are linked to RPI as well. As to the FT it has another use because if you are on the opposite side to it on a big issue the odds are in your favour.

  6. The ” UK Boomed in July” -after growth of 0.3% in May, then a terrible 0.5% in June, but taking account weak industrial figure less than forecast and also manufacturing gone negative and also missed forecasts, I don’t think it is the time to get out the bottle of champers and celebrate.

    Interest rates will likely be on hold this week but they may use the excuse for the last rate rise on an improving economy by picking the plums and leaving the stones!

    • must have been all that talk of remainers getting another vote ….
      ( spell check wants remainers to be retainers !!)

      eheheheheheh

      mustn’t be wicked
      ( but they might just get one – and wanting may not be as pleasurable as getting ! )

      Forbin

      • Freudian slip again above in my post sorry, should read:

        The ” UK Boomed in July” -after growth of 0.3% in May, then a terrible 0.1% in June, but taking account weak industrial figure less than forecast and also manufacturing gone negative and also missed forecasts, I don’t think it is the time to get out the bottle of champers and celebrate.
        Interest rates will likely be on hold this week but they may use the excuse for the last rate rise on an improving economy by picking the plums and leaving the stones!

  7. Hello Shaun,

    so which one of these do you think can replace Mark ?

    well I think my self I’d prefer L.I.R.A. from blackout ( WARNING! its in German with sub-titles)

    but I’d think we’d end up with Fred the fridge! ( or the M.O.R.T.E.N. )

    Forbin

  8. Just watched Andy Verrity on BBC News telling us everything in the garden was rosy in July.
    A walk down any High Street will tell you this is bullshit,
    National and private debt continues to rise, things will continue to deteriorate because we continue to follow economic policies that have been failing us for 39 yrs and 4 months.
    We hear a lot about RT being Russian propaganda the media here is definitely Government propaganda.
    Interest rates continue to be manipulated they cannot be allowed to rise 10 years into the financial crisis without end,real wages for most are falling,pensions have been destroyed ,young people going to University have huge debts,house price bubble still huge.
    Yet all we get is Brexit a red herring the state of the economy and the problems are entirely of our own making everything is due to incompetence and corruption.

  9. I have a solution to the trade deficit. We simply reallocate all those Battersea-like flats to ‘exports’ and the job is a good’un. Now, what about the subsequent flow of rents overseas? How is that treated?

    • Hi hotairmail

      The sales of such flats to foreigners will benefit the balance of payments via the capital account, So a lump sum gain but as you hint at any rent that goes overseas is a flow out of the country and thus a subtraction from the balance of payments. The ONS did some work on this a while back but this predated Nine Elms and was more about Chelsea, Kensington and Mayfair.

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