As UK house price growth fades so has the economy

Today has opened with news that is in tune with my expectations for 2017. This is my view that house price growth will slow and that it may also go negative. Such an event would make a change in the UK’s inflation dynamics as that would mean that official consumer inflation would exceed asset or house price inflation and of course would send a chill down the spine of the Bank of England. Here is the Royal Institute of Chartered Surveyors.

The headline price growth gauge slipped from +7% to +1% (suggesting prices were unchanged over the period), representing the softest reading since early 2013.

The date will echo around the walls of the Bank of England as its house price push or Funding for Lending Scheme began in the summer of 2013. Also the immediate prospects look none too bright.

Looking ahead, near term price expectations continue to signal a flat trend over the coming three months at the headline level……..Going forward, respondents are not anticipating activity in the sales market to gain impetus at this point in time, with both three and twelve month expectations series virtually flat.

Actually flat lining on a national scale conceals that there are quite a few regional changes going on.

house prices remain quite firmly on an upward trend in some areas, led by Northern Ireland, the West Midlands and the South West. By way of contrast, prices continue to fall in London…….. the price balance for the South East of England fell further into negative territory, posting the weakest reading for this part of the country since 2011.

We see that price falls are spreading out from our leading indicator of London and wait to see how they ripple out. Northern Ireland is no doubt being influenced by the house price rises south of the border. A cautionary note is that this survey tends to be weighted towards higher house prices and hence London.

The Real Economy

Let us open with the good news which has come from this morning’s production figures.

In June 2017, total production was estimated to have increased by 0.5% compared with May 2017, due mainly to a rise of 4.1% in mining and quarrying as a result of higher oil and gas production.

It is hard not to have a wry smile at the fact that something that was supposed to be fading away has boosted the numbers! Of the 0.52% increase some 0.51% was due to it and as well as the impact of a lighter maintenance cycle there was some hopeful news.

In addition, use of the re-developed Schiehallion oil field and use of the new Kraken oil field are contributing to the increase in oil production. Both are expected to increase UK Continental Shelf (UKCS) production over the longer-term.

If we move to manufacturing then the position was flat as a pancake.

Manufacturing monthly growth was flat in June 2017.

However this concealed quite a shift in the detail as we already knew that there has been a slow down in car and vehicle production.

Transport equipment provided the largest downward contribution, falling by 3.6% due mainly to a 6.7% fall in the manufacture of motor vehicles, trailers and semi-trailers.

This was mostly offset by increases in the chemical products and pharmaceutical sectors with some seeing quite a boom.

Chemical products provided the largest upward pressure, rising by 6.9% due mainly to an increase of 31.2% within industrial gases, inorganics and fertilisers.

If step back we see that over the past year there has been some growth but frankly not much.

Total production output for June 2017 compared with June 2016 increased by 0.3%, with manufacturing providing the largest upward contribution, increasing by 0.6%

There is an irony here as a good thing suddenly gets presented as a bad one and of course as ever the weather gets some blame.

energy supply partially offset the increase in total production, decreasing by 4.6% due largely to warmer temperatures.

If we look at other data sources we can say this does not really fit with the Markit PMI business surveys which have shown more manufacturing growth. It may be that they have been sent offside by the fact that the slowing has mostly been in one sector ( vehicles). If the CBI is any guide then the main summer months should be stronger.

Manufacturing firms reported that both their total and export order books had strengthened to multi-decade highs in June, according to the CBI’s latest Industrial Trends Survey.

The overall perspective is that the picture of something of a lost decade has been in play.

Since then, both production and manufacturing output have risen but remain well below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (January to March) 2008, by 7.8% and 4.4% respectively in the 3 months to June 2017.


One of the apparent certainties of life is that the UK will post an overall trade deficit and the beat remains the same.

Between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017, the total trade deficit (goods and services) widened by £0.1 billion to £8.9 billion as increases in imports were closely matched by increases in exports.

So essentially the same as there is no way those numbers are accurate to £100 million. Even the UK establishment implicitly accept this.

The UK Statistics Authority suspended the National Statistics designation of UK trade on 14 November 2014.

If the problems were minor this would not be ongoing more than 2 years later would it? But if we go with what we have we see that as we stand the lower level for the UK Pound post the EU Leave vote has not made any significant impact.

In comparison with Quarter 1 and Quarter 2 of 2016, the total trade deficit over Quarter 1 and 2 of 2017 has been relatively stable.

This gets more fascinating when we note that prices and indeed inflation have certainly been on the move.

Sterling was 8.7% lower than a year ago, with UK goods export and import prices rising by 8.2% and 7.8% respectively over the period Quarter 2 2016 to Quarter 2 2017.


This is sadly yet another area where the numbers are “not a National Statistic” and I have written before that I lack confidence in them but for what it is worth they were disappointing.

Construction output fell both month-on-month and 3 month on 3 month, by 0.1% and 1.3% respectively.

This differs from the Markit PMI business survey which has shown growth.


We are finding that the summer of 2017 is rather a thin period for the UK economy. I do not mean the weaker trajectory for house prices because I feel that it is much more an example of inflation rather than the official view that it is economic growth. Yes existing owners do gain ( but mostly only if they sell) but first time buyers and those “trading up” lose.

Meanwhile our production sector is not far off static. So far the hoped for gains from a lower exchange rate have not arrived as we mull again J-Curve economics. Looking forwards there is some hope from the CBI survey for manufacturing in particular and maybe one day we can get it back to previous peaks. But we find ourselves yet again looking to a sector which appears to be on an inexorable march in terms of importance for the services sector dominates everything now and for the foreseeable future.

Meanwhile there is plainly trouble at the UK Office for National Statistics as the rhetoric of data campuses meets a reality of two of today’s main data sets considered to be sub standard.

Me on Core Finance TV






UK economic growth is showing some signs of slowing

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.

Household Debt

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,

Fingers crossed!


The UK economy is doing pretty well but inflation is on the cards

Today is a day where we await a raft of UK economic data under what is called an improvement by the Office for National Statistics. I have learnt to be circumspect about such things as for example the recent online improvement by the Bank of England means that it is harder to find things. However the UK economy has started 2017 in apparently pretty good shape highlighted by this already today.

We had a record Christmas week, with over 30 million customer transactions at Sainsbury’s and over £1 billion of sales across the Group.

Of course that is only one supermarket but more generally we have been told this.

The British Retail Consortium said a strong Christmas week boosted spending growth in December to a year-on-year rate of 1.7 percent, up from 1.3 percent in November.

Like-for-like sales – which exclude new store openings – saw annual growth of 1.0 percent, up from 0.6 percent in November.

So it would appear that the consumer is still spending and you may not the gap between these figures and the official ones. This shows us I think how much spending these days bypasses conventional retailing. Along the way I found some perhaps Second Hand News on the Sainsbury’s twitter feed.

Rumours? No, it’s true! Rumours by Fleetwood Mac was our number 1 selling Vinyl of 2016.

Business Surveys

The Markit PMIs released last week were rather upbeat too.

“Collectively, the PMI surveys point to the economy growing by 0.5% in the fourth quarter, with growth accelerating to a 17-month high at the year-end.”

Of course Markit still has some egg on its face from its post EU leave vote efforts singing along to an “it’s the end of the world as we know it” initial impact which turned out to be well if not fake news simply wrong.

The Bank of England

As well as issuing mea culpas the Bank of England is still running an extremely expansionary monetary policy. This afternoon it will purchase another £1 billion of UK Gilts ( government bonds) as part of its extra £60 billion of QE ( Quantitative Easing) as well as some Corporate Bonds. It also cut the official Bank Rate to 0.25% in August and let us not forget its latest bank subsidy the Term Funding Scheme which has provided them with £21.2 billion of cheap liquidity so far. No wonder bank deposit and savings interest-rates are so low.

Putting it another way if we use the old Bank of England rule of thumb the fall in the UK Pound £ has been equivalent to a 3% reduction in Bank Rate. This is why the “Sledgehammer” response in August was a mistake as it was in reality a minor addition to a powerful existing force, and was only likely to increase inflation this and next year.

Today’s figures


These turned out to be strong as you can see.

In November 2016, total production was estimated to have increased by 2.1% compared with October 2016……..The monthly estimate of manufacturing increased by 1.3% in November 2016

This monthly surge was also reflected in the comparison with a year ago.

The month-on-same month a year ago estimate of total production increased by 2.0% in November 2016, with increases in all 4 main sectors; the largest contribution came from manufacturing, 1.2%.

In case you are wondering about the last bit the reason is that manufacturing is the largest sector (~70%) and therefore was responsible for 0.8 of the 2% but other ( smaller) sectors grew more quickly.

Looking at this we learn too things. Firstly the North Sea Oil & Gas maintenance period has faded ( the Buzzard field mostly) with output up 8.2% on the month. Secondly the pharmaceutical industry continues to be very volatile in 2016 being some 11.4% up on the month and as it has done so it has mostly taken the overall manufacturing numbers with it.

Also it is hard not to think of the different German performance which I looked at only on Monday when reading this.

both production and manufacturing output have steadily risen but remain well below the pre-downturn peak.

They seem suddenly shy about providing the exact numbers.


We saw a marginal improvement here if we look at the rolling quarterly data.

Between the 3 months to August 2016 and the 3 months to November 2016, the total trade deficit for goods and services narrowed by £0.4 billion to £11.0 billion, with exports increasing more than imports.

If we look further we see something of a hopeful sign.

The 3-monthly narrowing of the deficit is attributed to an increase of the trade in services surplus,

We need to be cautious on two fronts here as the decrease is small and the services numbers are not that reliable over even a quarter. Also the media seems already to be concentrating on the poor monthly numbers for November forgetting that they can be particularly influenced well be factors like this.

Imports of machinery and transport equipment rose by £1.4 billion, and were the largest contributors to the increase in imports.

The theme is continued by the fact that not so long ago some £20 billion or so was lopped off the estimates for the 2015 deficit. Even in these inflated times that is a fair bit more than just a rounding error! Also we do get contradictions in the data sets as pharmaceuticals surge in the manufacturing numbers but lead to more imports from Europe. They should be a positive influence for December bit let’s see.


Here the news was more downbeat as you can see.

In November 2016, construction output fell by 0.2% compared with October 2016, largely due to a contraction in non-housing repair and maintenance….The underlying pattern as suggested by the 3 month on 3 month movement shows a slight contraction of 0.1%.

These numbers sadly are quite a shambles so take them with plenty of salt or as it is officially put.

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction output and new orders as National Statistics due to concerns about the quality of the Construction Price and Cost Indices used to remove the effects of inflation from the statistics.

A major theme of my work is the official inability and at time unwillingness to measure inflation from the housing sector properly and thus we see something of a confession. More than 2 years later it is still broken even according to the official measure.


So far the UK economy has done rather well post the EU leave vote as the storm predicted in the mainstream media never happened. Indeed if you are a fan of official data something has been going well for quite some time. From the twitter feed of the economics editor of the Financial Times Chris Giles.

UK income inequality at its lowest since height of Thatcherism

Another U-Turn? After all he led the Piketty charge for er inequality did he not? It is a bit like much of the Desert War in the 1940s when the British army had a phase of “order, counter-order, disorder”. My personal view is that there are lots of issues here such as inflation measurement which varies amongst groups as well as other problems and the fact that we need to look at assets as well.

Looking forwards we are likely to see some what might be called “trouble,trouble,trouble” around the summer/autumn as the increase in inflation impacts on us and via real wages looks set to slow the economy. Meanwhile the rhythm section to the UK economy continues to hammer out a trade deficit beat like it has for quite some time.

The UK labour market gives a different view on construction output

Today sees the latest labour market data for the UK and as well as employment and unemployment numbers we get the most crucial metric of these times which is the average earnings data. However having noted that the BBC Breakfast business section informing everyone that we will get post Brexit data the picture is in fact more complex than that as the main numbers only cover June so we will only get a flicker, maybe. That is unless you wish to base your analysis on the long discredited claimant count numbers. I still remember the Yes Minister episode from 1983 which cast doubt on them. So what we will really get is a much clearer idea of the effect on the uncertainty caused by the run-up to the referendum.

What has been the impact of migrants on the UK labour market?

The Resolution Foundation has looked at the impact and decided this.

The increase in inward migration experienced over the course of the past decade coincided with a stagnation and then a fall in earnings, which some have linked.

They give us an idea of the change that took place.

It is now estimated that there are approximately 8.1 million migrants (or non-UK born individuals) living in the UK, up from 3.5 million in 1993

We learn something about wages as well.

On pay, migrants from the countries that joined the EU in 2004 earn around £8.30 an hour, compared to approximately £11.10 for natives. Workers from the EU ‘original’ countries earn the most, while the earnings of native workers and workers from the rest of the world are similar.

However they conclude this.

The result of our version of this approach shows that, in aggregate, migrants have had no effect on the wages or employment prospects of natives. However it is wrong to say that migration has had no effect at all on native wages because this overall picture masks the fact that across the distribution of natives of different educational levels or in different occupations there has been some effect, albeit very small.

Later though we get something which is rather awkward for that conclusion. The numbers below cover the 15 occupation sectors where we see the most migrants present. The highest percentage is in food manufacture and production where 25.5% of the workers are migrants.

Pay in these sectors averages £9.32 an hour, significantly below average native wages of £11.09. We know that lots of workers in these sectors are migrants from the EU ‘accession’ countries, whose average earnings are £8.33, £2.76 below that of natives

Sadly there is a fair bit of politicking in the report which as ever I have avoided. However I am l not convinced by the argument that you can be sure of a result by running an Ivory Tower style regression analysis. If you have a large increase in labour supply as it looks like food production has seen and then relatively low wages I am unclear as to how you can argue that effect is “small”. I would suspect that someone who had worked in that area might not think so. Care if needed though because there are quite a few areas that are much less affected and it is also true that this did not cause lower wages on its own but looks like something which gave them a nudge lower.

Today’s numbers

Firstly we saw a rather familiar trend in employment continue.

There were 31.75 million people in work, 172,000 more than for January to March 2016 and 606,000 more than for a year earlier…..The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.5%, the highest since comparable records began in 1971.

On the other side of that coin we also saw this.

There were 1.64 million unemployed people (people not in work but seeking and available to work), 52,000 fewer than for January to March 2016, 207,000 fewer than for a year earlier and the lowest since March to May 2008.

So the quantity situation continues on a positive path and the number below hints at a good quarter for productivity as measured by output per hour as we recall that GDP growth was 0.6%.

 ( Hours worked were ) 1.2 million (0.1%) more compared with January to March 2016

If we move to the wages numbers they were slightly better as well.

Between April to June 2015 and April to June 2016, in nominal terms, total pay increased by 2.4%, little changed compared with the growth rate between March to May 2015 and March to May 2016 (2.3%).

Moving to real pay we see this.

Between April to June 2015 and April to June 2016 in real terms (that is, adjusted for consumer price inflation) regular pay for employees in Great Britain increased by 1.9% and total pay increased by 2.1%.

Thus we learn that the picture running up to the Brexit referendum looks of the Goldilocks variety with employment rising, unemployment falling, real wages rising and probably productivity improving as well.

As to the one post Brexit number we got here it is.

For July 2016 there were 763,600 people claiming unemployment related benefits. This was: 8,600 fewer than for June 2016 (the first monthly fall since February 2016) and 27,100 fewer than for a year earlier.

So a fall except I stick with my point from earlier in the article that whilst we learn something from this care is needed. However it is hard not to have a wry smile at this from the Guardian an hour or so before.

Economists polled by Reuters are expecting a 9,500 jump in claims last month, following a rise of 400 in June.

Single month analysis

We can drill down further to single months but this also comes with a dose of caution. What we see on this basis is that wages growth was unchanged in June at 2.2% whereas employment did this 74.2% (April) then quite a surge to 74.7% in May then 74.6% in June. So it was better than the previous quarterly high but was a dip on May.

June did see a rise in the unemployment rate to 5.1% so maybe some pre Brexit uncertainty but it did come with the employment numbers described above.


Let me open with something which highlights the fact that we cannot take official numbers as gospel. Remember the lower construction output data? From @NobleFrancis

Construction employment in April-June 2016 was 2.0% higher than in January-March & 5.4% higher than a year ago.

I have made the point that these are inconsistent and they are. Here are the replies I got from him and another source of data in this area.

Lag indicator? Mix of work – building employs > infrastructure? But I don’t disagree with you  ( @brickonomics)

it would still be odd to see rising employment despite lags. ( @NobleFrancis )

So we know less than we sometimes think. We can say that the run up to the referendum was not “the end of the world as we know it” but we have a mixture of signals here. We could see upwards revisions to construction output which changes the narrative there and the numbers today are overall good. But the silver lining does come with a cloud which is the hint of more unemployment in June.

As to the Bank of England Agents they expect flat employment over the next 6 months and this for wages.

Growth in total labour costs had edged higher in manufacturing, but was little changed overall, with the majority of pay awards remaining in a range of 1%–3%.





UK GDP is an example of the march of the services and not makers

Today gives us our first full insight into how the UK economy performed in the first three months of 2016. Let me open with a sector which was turbo- charged in that period. From the British Bankers Association or BBA.

Gross mortgage borrowing of £17.1 billion in March was 64% higher than a year ago and the highest borrowing since April 2008 following a reported sharp increase in purchase of buy-to-let and second homes, ahead of the increase in stamp duty on 1 April 2016.

As you can see the pedal had pushed nearer to the metal and if we look to the future we see that we can expect a follow-on effect in the second quarter of this year.

The number of mortgage approvals in March was 20% higher than a year ago, with remortgaging up 25% and house purchase up 14%.

So it was time for the Outhere Brothers in the quarter just gone.

I say, boom boom boom now let me hear you say wayoh

The BBA itself summed up the position as shown below.

A surge in buy-to-let and second home buying ahead of the new stamp duty surcharge in April led to a sharp rise in March’s gross mortgage borrowing as people brought transactions forward.

If we look back to yesterday’s article then one of the last things we need is buy-to-let buying driving house prices even lower and I note that even the BBA is unable to avoid pointing that out.

This has fuelled a hike in house price inflation in the first quarter of this year, with the ONS suggesting in its latest report that annualised increases in house prices were 6.1%. Indeed, the ONS House Price Index points to an even larger house price increases of 7.2%.

Unsecured Lending is rising fast too

Regular readers of this website will be aware that other forms of personal lending have been seeing a boom too. For instance we have tried to peer into the data to see if we can find our more about car loans. Here is the BBA view.

However, there is evidence of a stronger pick-up in lending elsewhere; as mortgage affordability rules have worked through the system, lending has shifted to personal loans and overdrafts as well as to credit cards. The difference between credit card lending and repayments shows that consumers are taking advantage of low interest rates and building their net borrowing . The same is the case for overdrafts and personal loans.

There is a clear issue here as pre credit crunch when mortgage lending was likely to be over the rules then borrowers were “helped” by being given personal loans and the like. It seems as though that might be happening all over again and is a powerful critique of macroprudential policies. In other words whilst the sky may be clear at the altitude of an Ivory Tower down at ground level reality is foggy.

We have seen evidence of this impacting on car sales and no doubt this has also been a factor in the UK’s strong period of retail sales growth. But here the boom theme starts to fade away as we note that by the end of the quarter monthly growth had gone negative and annual growth had slowed to 2.7%.

Business lending not so good

The Funding for Lending Scheme was supposed to be for lending to small and medium-sized businesses. But as I have explained so many times that was something of a red herring to allow them to push hard for more mortgage lending. They do not put it like that but even the BBA is in agreement.

This may be because lending to the private sector overall, including businesses, is less buoyant

This reminds us of an area which is much less buoyant itself to coin a phrase.

Total production output is estimated to have decreased by 0.5% in February 2016 compared with the same month a year ago, the largest fall since August 2013. The largest contribution to the fall came from manufacturing, which decreased by 1.8%.

We are not up to the end of the quarter with the numbers ( and perhaps GDP should wait for a fuller data set) but you can see that the “rebalancing” promised by Baron King of Lothbury and indeed the “march of the makers” by Chancellor Osborne seem to have gone missing.


This is a very troubled data series and should be taken with a lot more than the proverbial pinch of salt. But it too hints at a slowing.

In February 2016, output in the construction industry was estimated to have decreased by 0.3% compared with January 2016…..Compared with February 2015, output in the construction industry increased by 0.3%. All new work was flat while there was an increase of 0.8% in repair and maintenance.

I think that the position is better than that although I may be suffering from local bias as there are plenty of cranes for me to count as I cycle past Nine Elms.

The banks

You might think that with all the help they have received then bank profits would be surging and helping the recovery. But apparently not seems to be on repeat.

Barclays has reported a 25% drop in profits for the first quarter of the year, mainly due to a weak performance in its investment banking division.

Pre-tax profit for the first three months of the year was £793m, down from £1.1bn for the same period last year.

Although I am reliably informed that if you take out all the losses then the numbers are superb! Speaking of spinning, the BBC and GDP I am troubled by this from its economics editor.

It is likely – in fact probable I would say after speaking to those close to Mr Osborne – that the Chancellor will claim “referendum uncertainty” as one of the reasons for the stuttering economy.

You see this was published in the 24 hour purdah period when those who are close to the Chancellor may well be aware of the numbers as he certainly will have known them.


In the end it all comes down to what in gang terms is the Master G of UK GDP numbers these days. The official weights remain back in 2012 at 78.6% for this sector but it must be much more like 80% now. Anyway this morning’s update gives signs of a slowing here too.

The Index of Services is estimated to have increased by 2.5% in February 2016 compared with February 2015……The latest Index of Services estimates show that output increased by 0.1% between January 2016 and February 2016. This follows growth of 0.1% between December 2015 and January 2016, which is revised down 0.1 percentage points from the previous estimate.

If we continue at around 0.1% a month then the annual growth rate will halve. Also business services and finance only rose by 2% in the year to February but of course the latest mortgage numbers are not in there yet.

The Overall Numbers

Change in gross domestic product (GDP) is the main indicator of economic growth. GDP is estimated to have increased by 0.4% in Quarter 1 (Jan to Mar) 2016 compared with growth of 0.6% in Quarter 4 (Oct to Dec) 2015.

In annual terms this translates to.

GDP was 2.1% higher in Quarter 1 (Jan to Mar) 2016 compared with the same quarter a year ago.


It is good news that our economy continues to grow and in annual terms our performance will be solid relative to Europe. However the ying to that yang is of course the fear that the slowing of the growth will continue. Care is needed as the numbers are not in themselves accurate enough for us to be absolutely sure but of course other numbers have been consistent with a slower beating of the economic drums.

Also if we ignore the official hype then the “march of the services” goes on.

Services increased by 0.6%, contributing 0.50 percentage points to Quarter 1 (Jan to Mar) 2016 GDP growth

Yes you do read that correctly and yes other sectors did in fact shrink.

There was a downward contribution (0.05 percentage points) from the production industries; (mostly mining and quarrying but manufacturing fell 0.4% as well)……There was a downward contribution (0.05 percentage points) from construction;

Make what you will of the construction numbers as it is very unlikely that they are correct but you never know and indeed the ONS doesn’t either!

All of my past critiques of the use of GDP numbers apply here so as ever caution is the watchword and here is another thought. How do we define services? Has the definition somehow spread? I am reminded of the large exchange between it and construction around a year ago which of course was a much bigger deal for construction due to their relative sizes.



If we cannot measure construction accurately what about the rest of GDP?

The modern era has seen economic growth as measured by Gross Domestic Product or GDP become something of a Holy Grail. It is also rarely out of the news for long. For example early this morning we saw the latest number for China. From Bloomberg.

Gross domestic product rose 6.7 percent in the first quarter from a year earlier, meeting the median projection of economists surveyed by Bloomberg and in line with the government’s growth target of 6.5 percent to 7 percent for the full year.

Quite a heroic effort in a country as far-flung as China to know the number with such accuracy only 15 days after the end of the quarter! The more homogenous UK which takes around 10 days longer thinks by then it only has around 40% of the final data. But this obvious problem is not my subject as i wish to focus in on one subject which is construction and the enormous problems the UK has had in measuring what you think would be a relatively simple thing to do.

On Tuesday I did a little of it myself as I cycled around the developments at Battersea Power Station and Nine Elms. For those unaware of the geography the site extends from Battersea Park to Vauxhall and must be on the scale of what happened at Canary Wharf. Residential tower block after tower block is being built there showing what I know as I thought they had gone out of fashion after the concrete jungles created in the 1960s and 70s! Also the American and Dutch embassies are relocating there. As a principle you would think that this would be easy to measure as the buildings are obvious and many of the machines used to build them are on a similar scale. The local public houses must also be getting an enormous windfall from thirsty construction workers.

Problems, Problems

We only need to look back to the latest UK GDP update to get a hint of the issue here.

Construction output decreased by 0.4% in Quarter 4 2015, revised down 0.3 percentage points from the previously published estimate.

As you can see there was quite a change and this is for the new supposedly improved system. Indeed even the new version for 2015 poses questions.

Construction output in 2015 as a whole was 3.4% higher than 2014, much lower than the rate of growth for 2014 (7.5%). This was largely due to the 2 consecutive quarters of negative growth in the second half of 2015, with construction output falling by 1.7% and 0.4% in Quarter 3 2015 and Quarter 4 2015 respectively.

If we compare this to the surveys conducted by Market for its Purchasing Managers Indices we see an answer so different someone has to end up being embarrassed. You see over the period in 2015 where the official numbers showed a contraction the PMI varied from 55.3 to 59.9. So we had solid growth or surging growth on that measure in every month. As Kipling so aptly put it.

OH, East is East, and West is West, and never the twain shall meet,

Analysing the difference

The UK Office for National Statistics has had a go and they find themselves having to admit the central issue .

(they) have painted a different picture of the underlying performance of the construction industry; raising questions about the quality and accuracy of both sources.

This seems to be the limit of current expectations.

post 2013, both show an underlying upwards trend for output in the construction industry.

Frankly I can see that by looking out of my window! Also whilst the first bit below is true the latter is not as revision follows revision.

the Markit PMI is the more timely estimate, but our slower release of data enables us to provide a more comprehensive coverage of the industry.

I can agree with this bit.

It is not surprising, given the conceptual differences explained in this article, that the 2 measures sometimes give different signals.

You see the PMI series does have issues of its own and it is not a direct comparison with the output series on a monthly basis. Okay. But you see this does not address the “up is the new down” issue over the latter 6 months of 2015! The PMI series records very strong growth and the official data shows a contraction.

February 2016

This morning’s data just continues what is becoming an even longer sequence. Here are the official numbers.

In February 2016, output in the construction industry was estimated to have decreased by 0.3% compared with January 2016. Both all new work and repair and maintenance reported decreases, falling by 0.2% and 0.5% respectively.

This compares to a Markit PMI reading showing steady growth as both February and as it happens March had a reading of 54.2. Now the ONS can make a critique of monthly differences but we are getting quite along period now of completely different patterns for the two series.

Oh and the Markit series is slowing down overall whilst if we switch to the quarterly numbers we may be seeing a pick-up in the official data overall.

Comparing the 3 months, December 2015 to February 2016, with the previous 3 months, September 2015 to November 2015, construction output increased by 1.5%.

I like to Move It,Move It

There have been some major changes along the way and people ask me how things are categorised. Well the ONS is sometimes not so sure either.  From Brickonomics last October.

Having explored the issue more, but far from exhaustively, it appears in March there was a reallocation of a major business from the services sector to construction. When I say major I mean a firm turning over significantly more than £1 billion a year, probably more like £3 billion.

Oh and it gets better as the numbers were imputed and turned out to be rather different from the actual ones and this was discovered because Brickonomics had wondered what was going on here.

in April the ONS decided that on an annualised constant price basis the industry was £3.7 billion bigger than it was thought a month earlier. Blimey.

Or to put it more officially.

Construction output increased by 1.4% in Quarter 2 2015, revised up 1.2 percentage points from the previously published estimate.

Blimey indeed.

There have been various attempts to improve this such as a formal meeting which appears to have disappeared from the new ONS website. But for now let me just point out that it has lost the National Statistics label and solutions are described as “interim”


If we look at the UK construction series we see that this all began with a problem that is my central theme. It started with the inflation measure or deflators which misfired which posed its own problems for the output series. Next the output series hit more trouble and the seasonal adjustment in another familiar theme is not going so well either. There isn’t much left really is there?

This poses quite a problem for the overall GDP numbers. Whilst construction is dwarfed by the services sector it is still a bit over 6% of GDP or at least we think it is. But our inability to measure it poses a serious question for those attempting to measure more inanimate output such as the “sharing” economy and indeed much of the services sector. After all if we are struggling with cranes,diggers and buildings…

I’m fixing a hole where the rain gets in
And stops my mind from wandering
Where it will go ( The Beatles)

My personal view is that the situation is better than the official numbers show. I was only half-joking when in the past I said that I would be counting cranes! But whilst there is an obvious bias in what is happening near me other anecdotal measures including industry contacts are positive. Also the Federation of Master Builders was so too at the end of 2015.

activity in construction rose for the eleventh consecutive quarter in Q4. This growth was reported by firms across all areas of the industry, and was led by new building activity in the private housing, commercial and infrastructure sectors.

But how much is less sure.


Here are my views on how the IMF was changed to suit political rather than economic ends as expressed to TipTV on Wednesday.








Official construction data revisions pose yet more problems for GDP measurement

One of the themes of this website has been that Gross Domestic Product numbers are far less reliable than is commonly perceived. Indeed we have discovered that there is quite a litany of flaws in using them as a measure of economic wellbeing. Today I wish to simply concentrate on the issue of how accurate they are and in particular how accurate one of the building blocks of it which is the construction series is. Before I do so I would like to point out that under the new ESA 10 definition it would appear that GDP in Spain has seen a trim this morning.

Three tonnes of cocaine seized in Spain, 12 arrested: police

Has anybody informed the police services that they are the enemies of modern GDP measurement?

US Construction Output

Yesterday saw quite a change in the official US construction data released by the Census Bureau. In its own inimitable style Zerohedge reported it thus.

That all changed today when the US Census released its latest, November, construction spending data, which not only missed expectations of a 0.6% increase, but tumbled -0.4%, the most since June of 2014, while all the recent changes were mysteriously revised lower.

Of course this poses a question for the US Federal Reserve and its plans to continue to increase interest-rates. This was enhanced by John Williams of the San Francisco Fed who told CNBC this “I think something in that three to five rate hike range” can be expected in 2016. By the way John most people call that four…

As ever there is more than one way of looking at data so let us move on from the “end of the world as we know it” style of Zerohedge and look at the numbers themselves. If we do so we see that the construction output series in the year to October has been revised downwards from an annual growth rate of just over 13% to one of just under 11%. Accordingly we see that construction output was still growing strongly but there has been a trim. This continued into the November numbers which posted a decline of 0.4% on a monthly basis but were still 10.5% higher than a year before. So our first lesson is that there has been a slowing of the fast rate of growth but that care is needed with individual monthly numbers as what has just happened shows that they are unreliable.

The numbers can be looked at another way which was not in the Zerohedge article and they are illustrated by this. The old October 2015 output was 1,017,381 million dollars and the new is 1,127,040 million which last time I checked was a larger number! So the new series has in fact raised output by 1.8% compared to the past. If we look back we see that the boost came from December 2013 onwards as before the series was lower going back a couple of years rather than higher.

If we look into what caused this it was the private residential improvement spending series which has been revised back to January 2005 due to a “processing error”. If we return to GDP implications we see that the numbers for more than 10 years ago have just changed and back then they changed by around 1%. The precise series concerned changed by 1.7% back then and by 7% in October of this year. Thus in Taylor Swift terms there has been this.

Oh, oh, trouble, trouble, trouble
Oh, oh, trouble, trouble, trouble

So we see that there is a Good a Bad and an Ugly to this. The good is that the US Census Bureau has discovered its mistake and put it right so strike one for welcome honesty, and this is added too by output being higher than before. The bad is that even the numbers for 2005 have just been declared to be wrong and the whole series up to now has been changed by 1.7% with differing changes on its journey. The ugly message comes as we consider such a change (1.7%) when the GDP number it goes into is analysed in bites of 0.1%. Also as housing is a physical object it should be relatively easy to count as opposed to the inanimate concept of services which poses worries about what might be going on there.

If we move to the overall issue of housing and its impact on the US economy then the National Association of House Builders puts it thus.

Historically, residential investment has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP.

There is another issue here as if we have trouble counting houses and bricks what about the impact of trying to impute rents? Also for 2015 construction output was of the order of 4% of GDP.

Industrial Output

The series here has seen its own problems as I pointed out on the 22nd of July last year.

Firstly the picture in the United States changed yesterday when the level of industrial production was revised down by 2.5% (2012 and 2013 both saw 1% falls).

I brought more detail to the table when I looked at the problems of first world manufacturing on the 2nd of December.

The downwards revisions exclude some high-tech industries where the numbers are oddly troubled and reduced 2012 by 1.7%, 2013 by 1.6% and 2014 by 0.5%. They also implied the full data set for 2014 was not yet in, begging the question if it might also see a more substantial revision.

We are in the zone of up down flying around here as we note that construction has overall been revised up as industrial production was revised down. Again as these are actual things one would think that they are easier to measure than the service sector which of course is much the largest piece of what we consider to be a modern economy.

UK construction series

This is a much more troubled series than the US version. Back on the 12th of June I pointed out another problem in what has become a long list when first quarter output was revised up from -1.1% to -0.2%.

the incorporation of late data, new seasonal adjustment parameters and the introduction of an interim solution for deflators.

So new seasonal adjustment and a replacement for the deflators which means that something serious is wrong here. Take a look at these numbers from the Construction Products Association also from last June.

In 2014 Q4, on a yearly basis, construction output was revised up to 8.9% from 4.5% in the March release.  Similarly, on a quarterly basis, construction output increased by 0.2%, an upward revision from the March release which reported a 2.2% fall in output.

The problems continued in 2015.

In Q1, according to the April release, total construction output rose 4.4% year-on-year compared to a 0.3% fall reported in the March release.

How can one have any confidence in numbers changing by such amounts? This was the road to where I suggested not entirely in jest that I would count cranes myself. If we switch to official language then there have been 3 signs of a change. There is an official steering group looking into it, the national statistics designation has been suspended and a new person has been appointed to oversee the data. Poor Kate Davies has received something of a rugby hospital pass although of course it is also true that the only way is up.

In October the Brickonomics blog reported more signs of trouble.

They added about £1.5 billion to the turnover in cash terms over the months March to July. That’s about 2.4% more over that period than was thought when the count was made a month earlier.

The “headscratching cause?” well ….

it appears in March there was a reallocation of a major business from the services sector to construction. When I say major I mean a firm turning over significantly more than £1 billion a year, probably more like £3 billion.

This poses more questions than answers as we reshuffle the GDP pack but if you think about it there is a danger that this masks the underlying problem by making the series look better without really changing anything. I also note that the planned analysis of why the official series differs so much from the Purchasing Managers Indices was cancelled on the 11th of September last year for “operational reasons” which have nearly lasted for 4 months now.


Today’s article has added to my series on how we should take GDP numbers we much more than a pinch of salt. If we struggle to measure with any degree of accuracy something that you would think would be easy such as construction and indeed industrial output where does that leave services? I did raise the issue of this with the Professor Sir Charlie Bean review of UK economic statistics and if I get a reply I will let you know. After all it must be four- fifths of our economy now.

Meanwhile if you want to take the blue pill then Bloomberg offer this by pointing out that in an analysis of 142 countries GDP data the data quality index has the US in 1st place and the UK 3rd. I would not want to be in 142nd place would you?! Still over to Morpheus from The Matrix.

Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad.