Relax we just got wealthier and better off in the UK

From time to time our official statisticians give us some extra insight into where we stand and yesterday that happened in the UK.

The total package of current price GDP changes increases the size of the economy in 2016 by approximately £26.0 billion, around 1.3% of GDP.

Average growth of real GDP over the period from 1998 to 2016 has been revised up 0.1 percentage point to 2.1% per year.

I hope that readers in the UK feel suitably better off! Some have suggested that it makes our economy larger again than that of France but if a change of that size does make a difference the truth is we are very close and within the margin of error.

One factor I do welcome is the effort to improve the deflators which are the inflation estimates used in the national accounts.

the expenditure approach has traditionally been the determinant of annual benchmarked volume GDP estimates; research has been undertaken to identify the best deflator at a product level for each transaction in the UK National Accounts from those deflators that are currently available, therefore improving the volume estimate of GDP.

Now I do not know about you but I would think we should have been trying to use the best deflator all along. Also there has been an effort to record more accurately what is happening in out services sector something which regular readers will know I have been pressing for.

Blue Book 2019 has benefitted from the new Annual Survey of Goods and Services and the Annual Purchases Survey. These surveys have improved the quality of the current price estimates, providing new insights on the diversification of the services economy and the costs incurred by businesses in their production processes.

Some of you may be having a wry smile at the way that these moves always seem to raise GDP. Funny that as an ex-colleague of mine used to say. Perhaps that is what they mean by the use of the word “improvements” when revisions would be more accurate, as we note a potential Freudian slip. Sadly though even though it is Glastonbury season I can find no mention of rock and roll being added to the sex and drugs that were added on the previous improvement.

Tucked away in the numbers was something which reminded me of the description of the pre-credit crunch period as the NICE ( No Inflation Constant Expansion) decade.

Average nominal GDP growth for the period 1998 to 2007 remains unchanged at 5.0%,

So as it turns out we were targeting nominal GDP growth all along. Of course supporters of that policy have to then face a rather inconvenient truth that rather than a nirvana the economy then collapsed.

Today’s Numbers

The final revision of the first quarter held no surprises.

UK gross domestic product (GDP) increased by 0.5% in Quarter 1 (Jan to Mar) 2019, following a slowing in growth in the previous quarter. In comparison with the same quarter a year ago, UK GDP increased by 1.8%, its fastest rate since Quarter 3 (July to Sept) 2017.

We should enjoy that annual rate of growth as that is as good as it will get for a while as we know the UK economy had a difficult April and May causing the Bank of England to reduce its estimate of GDP growth this quarter from 0.2% to 0%.

Those wondering about what the influence of stockbuilding was on these numbers got a little more insight.

The underlying data show a substantial increase of £6.6 billion in stocks being held by UK companies in the most recent quarter.

Trade Problems

Another way of potentially looking at the issue of stockbuilding comes from the trade data.

The UK total trade deficit more than doubled to a record £20.3 billion in Quarter 1 (Jan to Mar) 2019, or 3.7% of GDP, and was the main contributor to the UK’s widening current account deficit……..The widening of the total trade deficit was due to a worsening trade in goods deficit (of £10.1 billion) and a narrowing trade in services surplus (of £0.7 billion)

That looks a signal of stockbuilding, however the UK’s status as a centre for trading in gold muddies the waters quite a bit so we learn less than one might initially think.

due largely to increased imports of unspecified goods (including non-monetary gold), which rose £6.0 billion.

But we can record some specific indicators.

Chemical imports increased £1.8 billion in the three months to March 2019, due largely to a £1.3 billion increase in imports of medicinal and pharmaceutical products.

Fans of the song Lily The Pink will appreciate the use of the word medicinal albeit with some disappointment that it was not followed by the word compounds.

How do we finance this?

I have no great faith in the official data for what are called the primary and secondary accounts because they rely a great deal on estimates of returns rather than reality. But we do know that selling assets abroad is one way of financing trade deficits. The Financial Times provided a glimpse of this yesterday.

Viewed from Bangalore, the purchase of a newly built three-bedroom apartment in London for more than £1.4m seemed like a safe investment bet.The top-floor three-bedroom home under construction in Keybridge House south of the Thames boasted views of the City of London and the Shard skyscraper. As Shonu Bhandari considered the purchase two years ago, agents told him he could expect the value to rise 15 per cent before the property had even been finished. The Indian entrepreneur, who runs a medical products company, happily signed up to buy.

Sadly for Mr.Bhandari things did not go well.

But his purchase soured quickly. When Bhandari approached a mortgage lender, it valued the property not at 15 per cent more than he had agreed to pay — but at 20 per cent less. With completion of the building looming, he signed over the property to a new buyer in March this year for £1.2m, losing more than £200,000 of his deposit.

That is one version of it which has been in full flow for quite a few years. But prospects for the Shard, Chelsea Barracks and Nine Elms to name just a few are not what they were.

But there are other types of asset sale if we move to Sky News.

Madame Tussauds owner Merlin Entertainments has accepted a £5.9bn takeover offer from the family owners of Lego and the private equity firm Blackstone.

Merlin, which also owns the Alton Towers and Legoland attractions, accepted the bid from Kirkbi, the investment vehicle of Lego’s Danish founding family, Blackstone and Canadian pension fund CPPIB.

Are we borrowing?

We have become used to Governor Carney and the Bank of England telling us that this has not been a debt fuelled recovery in the UK. They were at the same game in front of Parliament on Wednesday.

BoE’s Cunliffe: Low UK Interest Rates Haven’t Led To Explosion In House Prices Or Consumer Borrowing ( @LiveSquawk )

Meanwhile this morning’s national accounts tell us this.

Quarter 1 2019 was an unprecedented 10th consecutive quarter of households being net borrowers; households saw their net borrowing increase to 1.3% of GDP from 0.8% in the previous quarter………The households’ saving ratio remained historically low and was the joint fourth-lowest quarterly saving ratio since records began in 1963.

Comment

As we continue out journey through the post credit crunch era we see more and more consequences of the policies enacted. Sometimes it is the little details which are the most revealing as this story from Nobby in the Financial Times of how a flat he sold was converted into two.

However, it had been split into a 2 bed plus studio, total asking price more than doubled. Looking at the pictures, I couldn’t work out how the heck they had fitted a 2 bed into 700 sq feet and how big the pictures made it look. I realised they had put furniture in that was 3/4 normal size – tiny chairs and beds that can’t have been more than 5 feet long. Nothing illegal, but only someone who didn’t actually visit would fall for it.

We have a word for that which is innovative ( for newer readers that described the Irish banks, which then collapsed). Oh what a tangled web and all that.