UK GDP is a case of The Good, The Bad and The Ugly

Today is an example of be careful what you wish for. No doubt the UK Office for National Statistics thought it would be clever to produce monthly GDP data. But now in addition to the usual problems they find them not only being scanned beyond their capabilities but for the unwary comparing them to the quarterly and annual ones creates quite a of confusion. Indeed we can go through them in Spaghetti Western style.

The Good

This comes from this part of the release where we how have had three months of economic growth in a row.

Monthly gross domestic product (GDP) grew by 6.6% in July 2020 as lockdown measures continued to ease, following growth of 8.7% in June and 2.4% in May.

In terms of detail we are told this.

“Education grew strongly as some children returned to school, while pubs, campsites and hairdressers all saw notable improvements. Car sales exceeded pre-crisis levels for the first time with showrooms having a particularly busy time.

“All areas of manufacturing, particularly distillers and car makers, saw improvements, while housebuilding also continued to recover.”

The latter component will, of course,please the Bank of England. I have to confess a wry smile at the mention of distillers, have we been driven to drink? As to car sales this was reinforced elsewhere.

wholesale, retail and repair of motor vehicles subsector (in particular, the motor vehicles industry), which recovered to above its February 2020 level after seeing record low levels of output in April and May.

This is an area which was affected by the lockdown as when I took my car in for its MOT in August I was told that in April last year they had done 110 and this year 18. Another area which was similarly affected also boomed in July.

Monthly construction output increased by 17.6% in July 2020 compared with June 2020, rising to £11,922 million, because of growth in all construction sectors.

Then and slightly confusingly not directly linked to the GDP numbers ( which are output not expenditure ones) these will not be included.

The total trade surplus, excluding non-monetary gold and other precious metals, widened by £5.9 billion to £6.4 billion in the three months to July 2020, as imports fell by £8.5 billion and exports fell by a lesser £2.7 billion.

I point it out as it is rare for the UK to record a trade surplus which continues as we look for more perspective.

The total trade balance, excluding non-monetary gold and other precious metals, increased by £35.8 billion to a surplus of £3.7 billion in the 12 months to July 2020.

The Bad

Our perspective shifts as we switch to something approaching the more normal quarterly measure for GDP.

Gross domestic product (GDP) fell by 7.6% in the three months to July 2020 following two consecutive quarterly falls, as government restrictions on movement dramatically reduced economic activity.

In case you are wondering how we can grow for 3 individual months but shrink over the total it is because we are comparing the latter with the previous 3 months which include some pre pandemic data.

The Ugly

This comes if we directly compare with where we were or more strictly where we thought we were before the Covid-19 pandemic hit.

Monthly gross domestic product (GDP) grew by 6.6% in July 2020, following growth of 8.7% in June 2020. Despite this, the level of output did not fully recover from the record falls seen across March and April 2020 and was still 11.7% below the levels seen in February 2020,

So we have picked up but the peak is still a fair way ahead. Or if you prefer.

July 2020 GDP is now 18.6% higher than its April 2020 low. However, it remains 11.7% below the levels seen in February 2020,

There is a sub-plot to this which is unusual for the UK.

In July 2020, the Index of Services is 12.6% below February 2020, the last month of “normal” trading conditions prior to measures introduced as a result of the coronavirus (COVID-19) pandemic…..There was a rise of 6.1% in the Index of Services between June 2020 and July 2020.

The area which is normally a strength and pulls the numbers higher has in fact under performed. One feature of this is hardly a surprise although we can expect a pick-up from the “eat out to help out” policy when we get the August numbers.

Total services output decreased by 8.1% for the three months to July 2020, compared with the months to April 2020; this was led by accommodation and food service activities, which fell by 62.7%.

On the other side of the coin production has been helping in relative terms.

In July 2020, the Index of Production (IoP) was 7.0% below February 2020, the previous month of “normal” trading conditions, prior to the coronavirus (COVID-19) pandemic…..Production output rose by 5.2% between June and July 2020, with manufacturing providing the largest upward contribution, rising by 6.3%; there were also rises from electricity and gas (2.7%), water and waste (2.4%) and mining and quarrying (0.7%).

It was led by this.

The monthly increase of 6.3% in manufacturing output was led by transport equipment, which rose by 18.5%; all of the 13 subsectors displayed upward contributions.

However it had been in a weak spell anyway and then was hit hard so care is needed.

Comment

There are a lot of contexts and warnings required here many of which are driven by the unreliability of monthly GDP data. The unreliability will be worse right now due to the pandemic as we note something I was pretty much alone in reporting on August 12th.

This primarily reflects movements in the implied price change of government consumption, which increased by 32.7% in Quarter 2 2020. This notable increase occurred because the volume of government activity fell while at the same time government expenditure increased in nominal terms.

More was recorded as less which is a UK peculiarity and made our GDP numbers look worse by maybe 5% on the fall. But now we are seeing the other side of some of that as we note this from the July data.

The largest contribution to monthly growth is education, rising by 21.1%.

Now let me look at the mess which is health.

For example, the suspension of dental and ophthalmic activities (almost 6% of healthcare output), the cancellation and postponement of outpatient activities (13% of healthcare output), and elective procedures (19% of healthcare output) will likely weigh heavily on our activity figures.

If course for a spell Covid-19 treatment was booming well if we counted it.

 Further, our estimates may be affected by the suspension of some data collections by the NHS in England, which include patient volumes in critical care in England.

Oh and if you are struggling with quarterly numbers please run me by how you can get monthly GDP numbers?

For example, the quarterly activity estimates are only made available with a lag, necessitating a form of activity nowcasts.

That is a bit like the services monthly trade data which come mainly from a quarterly survey.

So we did not contract by as much as we thought and have not rebounded by quite as much either.

Looking ahead there are some further strengths for August as we have noted the potential rise in eating out and the Markit PMI reporting this.

A further surge in service sector business activity in August
adds to signs that the economy is enjoying a mini boom as
business re-opens after the lockdowns,

But the PMIs have been downgraded in importance quite a bit as time has passed. Looking further ahead there is this.

The UK has secured a free trade agreement with Japan, which is the UK’s first major trade deal as an independent trading nation, and will increase trade with Japan by an estimated £15.2 billion ( Sky News)

Oh and these things always promise more trade…..

Back to now whilst it was nice to have a bit of variety and be able to report a UK trade surplus it is also true it came from a bad route which is lower imports due to a weaker economy.

 

 

30 thoughts on “UK GDP is a case of The Good, The Bad and The Ugly

    • which is a nice contrast with Reuters

      ” UK economy extends recovery from COVID crash, growth seen fading

      Britain’s economy recovered half of its COVID-19 crash by the end of July, helped by pubs and restaurants reopening from lockdown, but the bounce-back is expected to slow as job losses mount and Brexit tensions rise.”

      Which seems more sensible

      Forbin

      • Well

        ““Education grew strongly as some children returned to school, while pubs, campsites and hairdressers all saw notable improvements. Car sales exceeded pre-crisis levels for the first time with showrooms having a particularly busy time.

        “All areas of manufacturing, particularly distillers and car makers, saw improvements, while housebuilding also continued to recover.”

        There was bound to be pent up demand for cars due to lockdown and some people actually better off under furlough saving money on travel and snacks when at work. As for campsites, hairdressers and restraint’s, campsites did well did well because everyone and his dog needed a holiday and preferably in the the UK, there would have been pent up demand for hairdressers and as for food outlets the half price meals boosted that sector.

        However reality will now start to kick in, we have further restrictions put in place with the increase in coronavirus which will worry some people. But with more redundancies set to come the food and retail sector and also cars for that matter which have all been boosted will now start to struggle as the year progresses.

        In fact the bounce back is already slowing.

        The BOE have already said there will be permanent damage to the economy for some time to come, and unless we can get unemployment figures to come down again we will not see a full recovery to pre pandemic figures.

        Bear in mind its not just the UK struggling most of the developed world is as well.

        This is far worse than the last financial crisis and the damage will last far longer imo.

        The world is running out of ideas and tools to fix the problem and no one is prepared to admit they are baffled what to do next.

        To top it all Trump has been bragging his has a weapons that no one has ever dreamed of before, if that all kicks of and they destroy half the planet we may be able to start all over again and regrow. This is what evolution is all about, you get new growth once the fires have all died out and the branches have been pruned.

        As you get older you get more philosophical about all these things.

        • I like your dead pan listing of the inevitable. There are queues at gunshops across USA, more than for food. Of course that is the lowest common denominator, I struggle to find a comparator with the UK, maybe toilet roll queues?

          🙂

          • https://www.youtube.com/watch?v=GHEbNLvQ_MY Rose Koira speaks internationally on the UN Agenda 21 (Great Reset) and blogs regularly on the Democrats website (she is a liberal democrat) and is the author of Behind the Green Mask: UN Agenda 21. Through her years of research she has uncovered the methods being used to implement the social engineering we are now living through.

  1. The service sector will only get back to it’s previous level when older people feel comfortable in pubs, hotels and restaurants and that will only happen after a vaccine is available. What we are seeing in these numbers is the power of the ‘grey pound’, as these are the folk with disposable income who eat out a lot, stay in hotels out of season and travel frequently. If all goes well and vaccination is available early next year, then we can expect dramatically improved service sector growth fairly soon thereafter.

    • Pavlaki, I like your positivity. However I think the social contract is broken. The Grey Pound exists by virtue of the hosuing ponzi. I reckon the disaffected labour pool will rebel and say, no we aren’t doing it anymore. Lets wait and see if you can get the unemployed 24 year old (cheated out of a graduate career) to return to social care and Barista work. This is the challenge in 2021, UBI may look better than wiping bottoms, UBI for the young may seem better than BLM rioting for Govt. The cold rain might keep everyone at home.

      • I don’t agree that the housing ponzi has created the grey pound as most pensioners only have one house that they live in. A very small percentage do equity release but not enough to make a difference. The source of the grey pound is that it is the last generation to enjoy generous pensions and that will take a long time to work out of the system. There is a pent up demand for entertainment and travel among these people and we will see this released once confidence returns.

        • I can certainly state that my son’s generation are doing their level best to eat out and drink and circumvent whever possible lock down rules that they regard as daft. ( masks on a deserted beach , really ?? )

          no doubg they’d be called stupid .

          but…

          it’s still the case from ONS own figures that those over the age of 65 are “dying ” from SARS-2. 90% of all recorded deaths that is , 45-64 its another 9%.

          BUT

          this roll of a wave that everyone , ( well politicians) are worried about does not appear to be killing many off now. Maybe we’re better at finding it , or it’s mutated , or just the plain fact that it was never that deadly in the first place ( I note that said ONS figures give me a figure of excess deaths over 2019 of 62K , not the 42K of HMG covid deaths – yes that depends on comparisons start dates) .

          Let’s go the Sweden route, let the people decide. It’s called Freedom.

          Forbin

    • People will only go out as pre lockdown when they aren’t muzzled, and the govt starts using common sense and apologise for turning the UK into an Orwellian nightmare. Lets face it thing life and freedom have changed forever.

      As someone who went out constantly i rarely shop due to masks (i will never wear one), as i just despair when seeing how meek fellow Brits have become.

      My kid was invited to go to a party next week at a trampoline park, a party that was cancelled in March due to lockdown, this has now been cancelled due to the rule of 6.

      That’ll be a few hundred pound not spent; multiply that by hundreds of thousands of kids parties up and down the country and you’re talking lots of jobs losses.

    • I suspect that there is some confusion over vaccines for an air borne virus. A vaccine allows the bodies immune system to produce anti-bodies and T-cell memory to stop reproduction of the virus in the lung’s cells and cause immune response. it does nothing to stop virus being up noses or in mouths whilst this process happens. So vaccines of an air borne virus may help the infected ( maybe, but no better than seasonal flu vaccines); but does not ‘zap the virus dead on irst contact. A person can still sneeze or cough and pass on the virus, vaccinated or not.
      But the good news is that covid-19 has exactly the same age profile for deaths as ‘all causes’ age death profile. That means it is most dangerous to those already most at risk from dying, predominantly elderly with comorbidities. As long as governments stop moving the ill old dears around, they should be safe, and everyone else can live normally if the idiots in charge would let us.

      • Elderly people i know would sooner things were prior to March and take the minimal risk and not live in a dystopian nightmare, far better that than to keep away from others, wear masks and pretend to be live a life.

      • Jim,
        The people in charge of this hoax -the government are not idiots -they are following orders and being advised by “experts” and then told to follow that guidance, the fact that the advice they are being given is based on lies and distortions of facts is down to the people who are planning the next stage of this dystopian nightmare and the global reset, your argument holds just as much water as the excuse given for mass uncontrolled immigration, that it is down to “weak” politicians afraid of being called “racist”, total balloney, they have been put in power to do a job and they are doing it.

      • . As long as governments stop moving the ill old dears around, they should be safe, and everyone else can live normally if the idiots in charge would let us.
        _______
        Which is precisely what I stated should be done at the start of this charade; protect the vulnerable, & let everyone else carry on as normal.
        That’s what anyone with an ounce of sense would have done, which is why it is so obvious to me that there had to be an alternative reason for such pre-meditated economic self-harm, & why I think that those who call me a conspiracy theorist are
        docile, gullible, dupes.

    • “If all goes well and vaccination is available early next year,”

      big IF

      If we go full tilt mode we won’t have the money to buy much of it.

      I’d rather catch it a survive like 8-9 /10 do than take a under tested vaccine .

      Maybe you’d take it but let the people decide , stop telling them , give them the facts. ( 15%-45% is the success rate for the current flu vaccines – if 15% is good enough why not 90% of mild symptoms ?? )

      Forbin

  2. Shaun, I find it ironic that in the midst of anguish about the UK breaking international agreements/laws, they announce a FTA with a country with a chequered history in that area. Its been reported as worth anything from £1.5Bn to £12.5BN to the UK , so not very much then.
    I don’t rate Mr Conway very much, but he has an interesting piece in the Times today, apparently the UK is still doing quite well in the cv-19 era in 3 areas of erm national competence; guns, drugs and money. A very odd shift in service trade of £24bn from 2009-2017 moved from Channel Islands to Saudi Arabia, increasing exports there by 49%. Clearly at least two off UK’s core competencies involved.

    • Hi JimW

      The chequered history was indeed quite something and of course the helicopter destroyers are on their way to becoming mini aircraft carriers. Which leads us to the guns and ammunition mentioned which is intriguing but if we switch to defence is clearly a strength. It is a good time to be into drugs to say the least.

      Services trade is really poorly measured and all sorts of things might be happening there.

    • Hi Peter

      That investment in Barclays turned out to be rather dodgy as some shares proved to be more equal than others. But it was Abu Dhabi I think.

      Moving to now you need to be brave to invest in a UK shopping centre and perhaps even courageous.

    • Principality Building Society say working from home is here to stay

      https://www.bbc.co.uk/news/uk-wales-54099181?intlink_from_url=https://www.bbc.co.uk/news/business&link_location=live-reporting-story

      What with the “R” rate now above 1 and Birmingham households cannot meet in each other’s homes, a second epidemic is now taking a footing.

      A V shaped recovery is now out of the window and its a possibility there could be a further retraction down the line imo.

      The North West infection rate is growing rapidly and so is London according to the recent data.

      What I think is going to happen sooner than some think is the UK will implement a further cut to zero in bank rate and a fair chance of negative rates to come.

      • yup peter

        I did say a 2nd wave was on the cards… but the first wave normally has to stop first (!)

        This is a rolling return that the masks have had no effect at all on. Because like SARS-1 this SARS-2 is mainly contact spread.

        When we get some politicians who undersatnd that getting the virus is not the same as hospitalizations and deaths ??

        Economics – GDP will suffer – this is a Service based economy that cannot allow people meeting each other.

        soon you will not be able to go out , book a flight or eat a meal ( or get a job ) if you don’t have the app ( I dont have a smart phone) with an “all clear ”

        Strange times

        Western Democracy died , not with a bang but with a cough, a mask and a tracking app…..

        Forbin

        • “When we get some politicians who undersatnd that getting the virus is not the same as hospitalizations and deaths ??”
          ___________
          You think they don’t know that now?
          You really, really, really think they are that stupid?
          All of them?
          No clever people get to the top in politics?
          I’ve said before & I’ll say it again: this economic collapse has nothing to do with illness, it has do with the utter horsing our economy took at the hands of banksters 12 years ago.
          Look at the economics since then: it becomes obvious that all that has been happening since has been that every frantic effort (0.5% interest rates were to combat an emergency right? Now it’s 0.1%) has been applied, to just keep things going in the hope that, before all efforts were expended, something would turn up which would either save the economy, or the banksters & their political servants.
          So covid proves a very useful whipping-boy if you’re gullible enough to swallow it.
          That’s why a second wave lockdown will or won’t happen without regards to the severity of that second wave, or its number of victims; it will depend on how economically effective the first lockdown was.
          Wisen up.

          PS: People do not wear masks to be polite or to save others; they wear them for fear of the consequences.

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