UK GDP is growing but not by much. However it is yet another embarrassment for the OBR

This morning has given us a chance to have another look under the bonnet of the UK economy. We can start with what is positive news.

Monthly real gross domestic product (GDP) is estimated to have grown by 0.2% in August 2023.

That is good in two senses. Firstly the simple one of growth and secondly a relative one because several of our peers seem not to have done. This week has seen a succession of growth downgrades for Germany for example. Also our ersatz quarterly measure improved a little.

Looking at the broader picture, GDP increased by 0.3% in the three months to August 2023, with growth in all sectors.

If we look back to the days ( last November) when the Office for Budget Responsibility and the Bank of England were suggesting that UK GDP was about to fall into a Muse style “supermassive black hole” we have done much better. Indeed if we add in the new revisions for the post Covid period their whole analytical structure has crumbled. The new GDP index number is 102.5 as opposed to the 100.4 of February of 2020 or the pandemic start. So their numbers have added to what they call The Productivity Puzzle because a lot of research assistants and PhD’s have rather expensively not only wasted their time but in fact provided analysis which would have made things worse.

August

In essence it was all one sector.

Output in the services sector rose by 0.4% in August 2023 and was the only positive contributing sector to the growth in monthly GDP. Production output fell by 0.7% and construction output fell by 0.5%.

So another shift towards us becoming a services economy and with the issue over energy prices and policy ( UK wind power fell to 1.6 GW around 7 am this morning) it seems that the trend will continue. At such moments it is hard not to have a wry smile at the past “rebalancing” claims of the former Governor of the Bank of England Baron King of Lothbury.

There were a couple of areas driving this and the first is below.

Professional, scientific and technical activities grew by 1.2% in August 2023, following on from a 0.5% growth in July 2023. The architectural and engineering activities; technical testing and analysis industry was the largest contributing industry, growing by 4.7% in August, followed by legal activities, which grew by 2.3%.

Next up is an area that we have ended up mentioning a lot.

Education grew by 1.6% in August 2023, after a fall of 1.7% in July 2023 where there were two days of industrial action by teachers in England.

Although the issue of switching the measurement from an income version to output is not in play this time around as teachers do get paid in school holidays..

Please note that education attendance is considered to be constant over the school year so summer holidays do not reduce the estimate of education output in August 2023.

IT also grew.

Information and communication also grew in August 2023, by 0.9%. The growth was driven by computer programming, consultancy and related activities, which grew by 2.4% in August after a fall of 3.1% in July.

Let me at this stage just note the size of the monthly swings here as I shall return to this issue. Also there is a conceptual issue as should not at least some of the category below be production?

Wholesale and retail trade; repair of motor vehicles and motorcycles also grew in August 2023, by 0.6%, with the largest contributor being the wholesale trade, except of motor vehicles and motorcycles industry’s growth of 1.1% in August.

I realise that servicing and repair of vehicles has moved towards the use of a laptop rather than a spanner but have we perhaps defined some of our production away?

On the other side of the coin we have an area that Covid effectively put into recession and then depression.

Output in consumer-facing services fell by 0.6% in August 2023 and remains 4.3% below pre-coronavirus (COVID-19) levels (February 2020), while all other services were 7.0% above.

One section of it did grow however and it is a surprise in an era of lower house prices and soaring mortgage rates.

The largest positive contributions to consumer-facing services in August 2023 came from accommodation (up 3.4%) and buying and selling, renting and operating of own or leased real estate, excluding imputed rent (up 0.7%).

Production

This is not a pretty picture.

Production output fell by 0.7% in August 2023, following a fall of 1.1% in July 2023, revised down from a 0.7% fall in our previous publication.

I guess we do avoid the monthly swings but in a bad way. Also it is hard not to think of the energy crisis issue as we look at this.

The largest driving sub-sector was manufacturing, which fell by 0.8% in August 2023.

Further detail is below.

Other manufacturing and repair was the main driving industry within manufacturing, falling by 3.4% in August 2023, followed by manufacture of computer, electronic and optical products, which fell by 3.2% in the month. The largest offsetting positive contribution within manufacturing came from the manufacture of transport equipment, for which output rose by 1.1% in August 2023.

Although if we look back we see we did have some growth and the index is at 99.7 compared to January 2022.

Overall though, production output rose by 1.2% in the three months to August 2023, where manufacturing was the main driver, growing by 1.7%.

On the energy issue this is welcome but should have been a national priority for some time now.

Mining and quarrying was the only production sub-sector to see increased output in August 2023, growing by 2.9%, driven by growth of 3.5% in the extraction of crude petroleum and natural gas.

The same index is at 88.5 showing how incompetent our government and indeed our whole political class as the others are similar actually is/are respectively.

Construction

This is an area that you would expect to be impacted by the interest-rate increases.

Monthly construction output is estimated to have decreased by 0.5% in volume terms in August 2023. This follows a 0.4% decrease in July 2023, revised up from a fall of 0.5% in our previous publication.

But it has taken its time because on a rolling basis we still have growth.

On the three months to August 2023, construction output increased by 0.9% compared with the three months to May 2023.

House Prices

Let me start by presenting the news from the perspective of the Financial Times.

Inflation has masked the true extent of recent falls in UK house prices, with many regions and nations of the UK no better off in real terms housing wealth than on the eve of the 2008 financial crisis, research has found.

“Research has found” is a dubious concept these days as it often is pre-designed for a particular outcome rather than to investigate so let us look deeper.

UK house prices have fallen by a modest 2.8 per cent in nominal terms since their peak in March 2022, but 13.4 per cent in real terms, according to analysis of the Nationwide house price index by estate agent Savills. After adjusting for inflation, average real house prices are no higher than they were in late 2015, Savills said.

Firstly I welcome lower house prices as they provide some respite in otherwise hard times for first-time buyers. But you might think that a financial journalist would spot that the correct deflator here is wages not inflation. Otherwise it is not a real house price is it?

Anyway we have another flicker of hope for first-time buyers which may be added to by the retracement in bond yields we have seen so far this week.

Rachel Springall, finance expert at Moneyfacts, said the average two- and five-year fixed rates had fallen for the second month running, offering borrowers potentially cheaper deals. “

Comment

There are two ways of looking at our present situation. One is that we have growth but not very much of it. The other is that we are doing far better than the ahem. experts told us. This is especially significant as what seems to be the likely next government wants to base its policy on consistent failure in this area. The first rule of OBR Club is that the OBR is always wrong.

Also I am glad I warned from the beginning that the monthly GDP numbers would be unreliable as the last three months make my point rather eloquently. June at 0.7% followed by July at -0.6% and then August at 0.2%. We can see that in elements of the detail.

The largest downward contribution was from arts, entertainment and recreation, which fell by 7.4% in August 2023, following 6.8% growth in July 2023, its largest growth since May 2021. Sports activities and amusement and recreation activities fell by 10.8%, after growth of 12.2% in July, and creative, arts and entertainment fell by 7.7%, after growth of 4.6% in July.

Does anyone actually believe that? Overall it has grown but those numbers above look a mess.

In the three months to August 2023, compared with the three months to May 2023, arts, entertainment and recreation has grown by 2.7%.

Regular readers will know I have long pointed out that the pharmaceutical sector does not correlate with a monthly schedule.

Finally let me mark your card for the public finances  figures which will see significant changes due to the GDP revisions.Thus on a theme for the day the OBR will be significantly wrong again

 

 

UK Monthly GDP stumbles in more ways than one

This morning the UK received some disappointing economic news as the Office for National Statistics released this.

For July 2023, monthly real gross domestic product (GDP) is estimated to have fallen by 0.5%, with falls in all three main sectors, following growth of 0.5% in June 2023.

It is not the decline per se that is the issue as there had been warning signs, but the size of the decline. Also I have long warned that this is an erratic series and a bad idea and I think that swinging from 0.5% up to 0.5% down rather eloquently makes the point. If that does not then since last December we have gone -0.5% then 0.5% then 0.1%, then -0.3% then 0.2% then -0.1% followed by 0.5% up and then down. Make it make sense!

If we now switch to the ersatz quarterly figures we see a much more stable situation.

Looking over a broader picture, GDP showed 0.2% growth in the three months to July 2023 when compared with the three months to April 2023. Production grew by 0.6% and was the main contributing sector to the three-month growth. Services and construction output also increased in the three months to July, both by 0.1%.

There are at least consistent and hopefully avoid some of the wild swings of the monthly series. Part of that is we will have more data on the earlier months in the series as the latest numbers only have around 60% of the final data.

However the annual comparison does get rather blown up.

Monthly GDP showed no growth in July 2023 compared with the same month last year. For comparison, monthly GDP grew by 0.9% between June 2022 and June 2023.

Part of the issue here is what we might call a Royal problem and perhaps our own fault for having a monarchy.

The Platinum Jubilee in 2022, and the move of the May bank holiday, led to an additional working day in May 2022 and two fewer working days in June 2022. It should also be noted that May 2023, saw one fewer working day as there was an additional bank holiday for the coronation of King Charles III.

These have affected the numbers but in truth there are also other issues with the reliability of the monthly series.

What about July?

We see an immediate issue as we look at our largest economic sector.

Services output fell by 0.5% in July 2023, following growth of 0.2% in June 2023

It very quickly becomes a case of “hello darkness my old friend” as we see this.

The main contributor to the fall in monthly services output was the human health and social work activities sub-sector, which fell by 2.1% in July 2023. This was attributed entirely to a 3.4% fall in the human health activities industry.

Although this time around it was not a consequence of the Covid response.

Industrial action was held in July by NHS senior doctors (two days) and radiographers (two days) for the first time while industrial action by junior doctors increased (five days in July, compared with three in June).

Or at least not directly as we do see the new methodology in play.

 NHS England reported that 65,557 appointments and procedures were cancelled because of the senior doctors strike and 101,977 acute inpatient and outpatient appointments were cancelled because of the industrial action by junior doctors.

The counting of appointments is rather messy, although presumably there would have been a fall under the old GDP system as you do not get paid when on strike.

The next largest faller was information and communication and we do observe quite a wild swing in the main mover and shaker here.

Computer programming, consultancy and related activities was the largest contributing industry, falling by 3.4% in July after three consecutive monthly growths in April, May, and June 2023.

That looks odd but the next one seems more consistent with the changes we looked at in the labour market figures yesterday.

Administrative and support service activities also fell in July 2023, by 1.4%. The largest industry within this sub-sector was employment activities, which fell by 2.3% in July after a growth of 2.1% in June. This industry has had a decrease in monthly output in 9 of the last 12 months.

There is another “hello darkness my old friend” moment. But again it is the strikes.

Education also fell in July 2023, by 1.1%, where the sector saw two days of industrial action in England at the start of the month.

Although this is a bit of a gem.

Please note that education attendance is considered to be constant over the school year, so summer holidays and school leavers did not reduce the estimate of education output in July 2023.

What could go wrong?

Finally there were some positives. But we see some especially wild swings here.

The main offsetting positive contribution was from the arts, entertainment and recreation sub-sector, which grew by 6.6% in July 2023; this was its largest growth since May 2021. Sports activities and amusement and recreation activities grew by 12.4% and creative, arts and entertainment grew by 4.9%.

Production

We see a not dissimilar pattern here.

Production output fell by 0.7% in July 2023, following growth of 1.8% in June 2023 (Figure 4). The largest falling sub-sector was manufacturing, which fell by 0.8% in July 2023.

Manufacturing saw a particularly wide gap with June.

This follows growth of 2.4% in June 2023, the strongest monthly growth since November 2020,

Frankly even allowing for the Bank Holiday impact that looks messy. Indeed our regular swing factor which is pharmaceuticals – for newer readers that industry does not operate on a monthly pattern and is erratic – does not merit a mention in spite of it reducing manufacturing output by 0.16% in July.

Construction

By the standards here this is not a large swing.

Monthly construction output is estimated to have decreased 0.5% in volume terms in July 2023. This follows a 1.6% increase in June 2023,

The Weather

It often gets the blame for weak economic data and it was quoted in the construction release. We can take that wider.

The July ( Met Office) report mentioned “the UK overall rainfall total was 170% of average overall, making this provisionally the wettest July since 2009 and sixth wettest July in the series”. The wet weather was cited as a reason for lower output in retail, as described in our Retail sales bulletin, and also in construction and outdoor accommodation venues.

To be fair the June release did mention that it was probably boosted by the better weather we saw then. So this bit is at least balanced and consistent.

Comment

The monthly GDP series is proving to be what one might call challenging. In impolite company one might call it much worse. I thought I would take a look at what I wrote last month.

Caution is required with taking monthly numbers too literally due to the error range but this time around I think that they are less than the bank holiday impact on the quarterly numbers. I have seen estimates of that being between 0.5% and 0.6% in the past. Personally I think it is not that large but if we halve it then it is material.

Apologies for the clunky English, but I think that holds up on that June allowing for Bank Holidays was perhaps 0.2%. If we add the subtracted element to July it becomes -0.2%. All very back of the envelope but it feels more sensible than what the official series has done.

Switching to the quarterly series then we are in the same position of having growth but not much (0.2%). Since then there has been a change following the Blue Book revisions which in a further muddying of the waters the ONS has ignored today. So again using a back of the envelope calculation the UK economy was 0.8% larger than pre pandemic in July.

 

 

 

What caused the large upwards GDP revision for the UK?

As Friday developed and we moved into the weekend it was clear that there had been quite a sea change in the reported performance of the UK economy. There are a whole litany of consequences from this as so much “expert” analysis is now today’s chip paper. I thought it was put well here.

I am a big fan of recent improvements but as
@ChrisGiles_ has flagged this AM the entire UK economic narrative – post pandemic – has just been revised away. Every “UK not back at pre-CV-19 level” headline now obsolete. “UK bottom of the G7” no longer true. Extraordinary. ( @shjfrench)

Of course well might Chris Giles be mulling such headlines as he wrote so many of them. But to be fair he also reported this news promptly which far from everyone did as for example I found myself chasing the BBC. Simon French also continued.

Now it is possible, as ONS note, that similar revisions will happen across G7 & UK is first out of the traps. But as macro guy who has had to talk to international investors why Gilts/ UK equities do/dont deserve a discount, this has cast huge doubt on recent investor conclusions.

Actually the US was first to do this and those who have followed my work on the measurement of GDP in health and education will know we had particular issues suggesting the UK was different.But there is a main point here and let us start with the scale of what David Bowie would call ch-ch-changes.

The GDP Numbers

We can start with the impact of the pandemic on GDP.

In 2020, average volume GDP is now estimated to have fallen by 10.4%, revised up by 0.6 percentage points.. This upward revision reflects both updated data and methods changes. Measurement of inventories is challenging over this time period; the changes in the inventories component is now estimated to have increased by £2.5bn in 2020 (previously this was a £11.4bn fall).

As you can see there has been a large change in inventories or rather the reporting of them. In the modern IT era we should surely know inventories

Next up is the rebound which was much more elastic than previously thought.

In 2021, average volume GDP is now estimated to have increased by 8.7%, revised up from a previous estimate of 7.6%

This is more of a step change because the initial fall in a recession is usually reduced over time albeit the 2020 was larger than usual but the rebound was much stronger than revisions usually show. So time for Marvin Gaye.

Oh, what’s going on
What’s going on
Ya, what’s going on
Ah, what’s going on

The official version is below.

Alongside confronting the three approaches to measuring GDP for the first time through the supply and use table (SUT) framework, we have also incorporated richer data across a number of GDP components. For example, in the expenditure approach, household consumption sees upwards revisions in 2021 because of better information available on areas such as Telecoms.

There are two clear areas that I have highlighted over the years. Firstly the fact that you can gain extra information from the other 2 GDP measures as for example expenditure explicitly includes trade and income is often more timely. I realise many are taught at school and indeed university that net trade is in GDP when it is more complex than that. Secondly we looked at the Deflator and inflation issue in Telecoms where my argument that the price falls ( in that period were 90%) were both disinflationary and a boost to GDP. I rather suspect “better information” is in fact coming round to my point of view that these things can create economic growth.

What does this mean?

We are back to the destruction of so much expert analysis.

Upward revisions to annual volume GDP growth in 2020 and 2021 mean that GDP is now estimated to be 0.6% above pre-coronavirus (COVID-19) pandemic levels in Quarter 4 (Oct to Dec) 2021; previously this was estimated as 1.2% below.

For example here is something from someone who has talked the UK economy down.

“The fact that the UK recovered from the pandemic much faster than thought shows that once again those determined to talk down the British economy have been proved wrong,” said Chancellor Jeremy Hunt, ( Financial Times)

His whole budget strategy was based on that in another misfire for him. But I am thinking more of places like the Office for Budget Responsibility and the Bank of England. The productivity crisis and indeed the claimed labour supply issue just changed in terms of them being specific UK problems as their “expert” analysis supposedly showed.

It is hard not to have a wry smile at this bit from the Financial Times though. Have they forgotten that their stock view is that the UK will not grow ( or worse)?

That will add the equivalent of two years of current UK growth to the country’s gross domestic product.

The GDP Deflator

I have been arguing since August 2020 that there has been something big going on here and it has been UK specific.

https://notayesmanseconomics.wordpress.com/2020/08/12/has-nobody-else-spotted-6-inflation-being-reported-in-uk-gdp/

For those new to the situation there was a warning as at a time when we were being told there was no inflation suddenly we had a recording of 6% which involved readings of over 30% in the areas in question. These were health and education and let me hand you over to last year’s Blue Book.

Movements in the implied GDP deflator in 2020 and 2021 have been largely affected by the government consumption deflator.

So they caught up to my point or rather were forced to admit it. Which meant this.

In 2020, the volume of government activity fell, for example, health and education in response to the coronavirus pandemic. At the same time, government expenditure increased in nominal terms……This led to a very large increase in the implied price of GDP in 2020, which then unwound in 2021 from this higher level.

We are back to the way you measure GDP as the UK switched to the output version for health and education rather than income. Then the pandemic hit which when dentistry stopped for example that meant UK GDP for this area was zero whereas elsewhere it changed little as state dentists were still paid. In essence the Deflator took the strain as our statisicians tried to recover reality. So I had a wry smile as I read this on Friday from them.

In 2020 the average gross domestic product (GDP) implied deflator growth is 5.1%, downwardly revised 0.8 percentage points. This is influenced by upward volume revisions in 2020.

There is less of an apparent influence in 2021 but you see if you take the view that something is embarrassing then the standard bureaucratic response is to obscure it. That thought was on my mind as I read this.

 Blue Book 2023 will enhance the quality of deflators used by:

• introducing new methods to account for changes in the quality of computer hardware
• expanding the use of Services Producer Price Indices (SPPI) in National Accounts
• introducing new weighting methods for market output deflators
• introducing improved methods and data sources to estimate trade in services’ travel deflators

If say we were discussing a naval battle that would be quite an effective smokescreen wouldn’t it?

Comment

There are lots of contexts to this. Many of you have pointed out that the UK economy seems to be doing well in your experience and it now turns out that it is a case of anecdotes 1 official statistics 0. Next up is the issue of taking care with ch-ch-changes and as so often David Bowie was ahead of his time.

Ch-ch-changes
Where’s your shame?
You’ve left us up to our necks in it

Or as @BillWells_1 kindly pointed out.

@notayesmansecon Is exactly right to identify UK’s decision to use (just) the output GDP version for health & education. A caricature of effect of this decision is that you measure the number of operations and not include in GDP the ‘hotel services’ in hospitals.

Of course the corollary of my initial point is that we are in fact no better off simply that the official numbers reflect things better. There is an irony as they have done so just as things look to be turning down! But better late than never and there is one further important point which Simon French made. As a past bond trader let me point out that one of the reason’s UK bond yields rose relatively higher was our supposed economic under performance. That should now begin to unwind although remember the first human response to a big change is usually denial. Let me finish with another wry smile.

The revisions may also not have a big impact on public finances, since they do not alter official tax receipts or public spending data. ( Financial Times)

I guess the FT will not be using debt to GDP ratios any time soon which surely matter if you have been running stories about a fiscal “Black Hole”.

Podcast

https://soundcloud.com/shaun-richards-53550081/notayesmanspodcast240?si=cd340a5d2868428089157c0576e5c03d&utm_source=clipboard&utm_medium=text&utm_campaign=social_sharing

UK GDP is revised higher but so is inflation

Today has brought some good news for the UK economy but with the kicker that inflation is on the march as well. So let us start with the good news on the economy.

UK gross domestic product (GDP) is estimated to have increased by 1.3% in Quarter 4 (Oct to Dec) 2021, upwardly revised from the first quarterly estimate of a 1.0% increase.

This means that we had pretty much got right back where we started from at the end of 2021.

The level of GDP is now 0.1% below where it was pre-coronavirus (COVID-19) at Quarter 4 2019, revised from the previous estimate of 0.4% below.

Of course there is the issue that such a performance rather leaves us singing along with David Byrne and Talking Heads.

We’re on a road to nowhere
Come on inside
Takin’ that ride to nowhere
We’ll take that ride

So the news is welcome but we are now facing more problems which takes us back to the fact that the economic outlook was not so great back at the end of 2019. We do not know what the state of play would have been without the Covid pandemic but we do know that many economies were struggling before it occurred.

In the detail we saw that the issue of debt is not as big a deal as it might be because of this.

Nominal GDP rose by 3.0% in Quarter 4 2021, revised upwards from 1.5%. It is now a revised 5.9% above its Quarter 4 2019 levels.

Around three-quarters of our debt is conventional and nominal so there is plenty of money around for government to pay interest on it.There is the inflation-linked part which is more of an issue and we can switch to that sort of theme by looking at why we had an upwards revision.

Health Output

This was the major player in the change and is an issue I keep signalling.

The rise in government spending in the latest quarter was driven by an increase in health spending of 4.6%, reflecting a rise in the NHS Test and Trace and COVID-19 vaccination programmes, including the booster programme.

You might reasonable think that in an era of incredible IT progress they would know these numbers in short order, but apparently not. For our purposes today we can also look at education.

Education consumption fell by a revised 1.5% in Quarter 4 2021 and is 5.9% below its pre-coronavirus level. The fall in the latest quarter reflects a decrease in student attendance towards the end of Quarter 4.

Okay so they did not know how many students there were? But adding it all up gives quite a change.

In current price terms, government consumption was revised downwards in 2021 to 7.0%. This was partly driven by downward revision to health expenditure. There were also downward revisions to current price expenditure on public administration and defence in 2021.

The Implied Deflator

We have seen the impact that trying to measure health and education output via the theoretically correct but in practice difficult and complicated GDP output series has had before. Regular readers will recall the early pandemic impact of a 33% move in these sectors moving the overall deflator by 6%. This matters because we are assured that this is true.

This deflator represents the broadest measure of inflation in the domestic economy, reflecting changes in the price of all goods and services that comprise GDP.

I am questioning this more and more because whilst this may be true.

The implied GDP deflator rose by 1.7% in Quarter 4 2021 (compared with Quarter 3 (July to Sept) 2021), upwardly revised from a first quarterly estimate of 0.6%

So they are noting the pick-up in inflation that was happening it required a revision to do it and the annual figure frankly just looks hard to believe.

Compared with the same quarter a year ago, the implied GDP deflator rose by 1.7%, revised from 0.8%

The issue gets worse as we advance wondering what health and education have done this time? Only to see this.

The quarterly change primarily reflected a revised increase in the implied price of household consumption……. ( and annually) This was mainly driven by the 4.4% increase in the implied price of household consumption.

So this revision has picked up some inflation but we are seeing large swings as they struggle to cope with a changing world.

Spending on household goods and services is 12.7% higher, while transport spending is 15.6% below its pre-coronavirus levels. Household spending on restaurants and hotels has now recovered to above its pre-coronavirus level.

House Prices

Next in our inflation saga comes this from the Nationwide.

“March saw a further acceleration in annual house price growth to 14.3%, the strongest pace of increase since November 2004. Prices rose by 1.1% month-on-month, after taking account of seasonal effects, the eighth consecutive monthly increase.

“The price of a typical UK home climbed to a new record high of £265,312, with prices increasing by over £33,000 in the past year. Prices are now 21% higher than before the pandemic struck in early 2020.

This is very wrong as the miss measurement of inflation has allowed the Bank of England to have a free pass at pumping up house prices and then claiming it has made people better off. This ignores the fact that first-time buyers and those trading up have to pay higher prices and thus face inflation and indeed lots of it. Furthermore some benefit from the bank of mum and dad but others do not so the Bank of England has added to inequality which is also a familiar theme in its behaviour.

As to looking ahead it is amazing really.

The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs.

It should not be true but somehow it is an even the Nationwide finds it necessary to invent some form of wages fairy.

The continued buoyancy of housing demand may in part be explained by strong labour market conditions. The unemployment rate has continued to trend down in recent months (to 3.9% in the three months to January) from already low levels. Wage growth has accelerated, though it is running below inflation.

Comment

There was also good news for the UK from the trade figures today as we saw some considerable upwards revisions.

Total export volumes rose by a revised 6.9% in Quarter 4 2021, from a first quarterly estimate of 4.9%. The increase was driven by a 9.6% increase in the exports of goods, particularly in unspecified goods, fuels, and chemicals. Service exports increased by 4.0% in Quarter 4 2021, revised from a fall of 1.8%. This quarterly increase reflected a rise in other business services, telecommunications, and intellectual property.

This will have various part of social media looking the other way as they have spent some time saying how bad the numbers are combined with all sorts of new analysis. Also for newer readers unlike what you are told at school and university trade is not explicitly in the GDP release ( it is in the expenditure version).

As some call us a “hairdresser’s economy” these days it was hard not to smile at this.

Other service activities, which includes personal services such as hairdressers, saw a marked upward revision.

Now I would like to pivot back to inflation and the Bank of England and address what was a whinge dressed up as a speech by the absent-minded professor Ben Broadbent yesterday.

Such criticisms, whether justified or not, are par for the course, and may not be that consequential in the grand scheme of things.

Inflation is around treble its target and house prices are flying but Ben seems to think criticism is unfair. Some of this he has harboured for a long time.

But there’s no doubt it happens. In September 2013, the MPC said that a minimum necessary condition for a rise in interest rates was that unemployment should fall below 7%

My first response is thanks for telling us all these years later! But let me give you an example of a clear technical failure which was using the unemployment rate in the first place. Next I am afraid to say is a lie as Governor Carney knew what he was doing.

Similarly, in a speech in July 2015^footnote[5], the then-Governor Mark Carney said the “the decision as to when to [start raising interest rates] will likely come into sharper relief around the turn of the year”. This was no more than suggestive…..

This is very much Lilly Allen style ( It’s not me it’s you…). But it gets worse because if he believes the statement below why has he spent the last 9 years or so supporting Forward Guidance on interest-rates?

And because it’s the job of monetary policy to respond to such things, interest rates are also unpredictable.