Sometimes one can kill two birds with one stone and the news below achieves that. Firstly it gives a counterpoint to the economic news I will be looking at and also noting yesterday’s post whoever presents the Bank of England morning meeting may get a satisfied smile from its Governor Andrew Bailey.
FTSE 100 dips but set for best quarter since financial crisis (Reuters)
The 6180 as I type this compares with 5666 according to my chart on the 31st of March. We can add to that record UK bond or Gilt prices as the two-year yield has fallen to -0.1%. They could add in that there will be another £3.45 billion of UK Gilt purchases this afternoon.
They could also throw in some humour by pointing out that someone thinks the UK GDP data is accurate to £1 million or a fourth decimal place.
Now worth watching Q4 number which rounds to zero – but which by the very tiniest of margins was actually negative – GDP at market prices went from 523,918m to 523,917m so -0.0002% ….Could be revised either way, but UK closer than realised to a recession that began last October.
That is from Faisal Islam of the BBC who is apparently its economics editor, although he interprets that brief very widely.
What about trade?
As ever the UK trade numbers need a little interpretation.
In Quarter 1 (Jan to Mar) 2020, the UK’s current account balance widened substantially from a deficit of £9.2 billion in Quarter 4 (Oct to Dec) 2019 to a deficit of £21.1 billion in Quarter 1 2020, or 3.8% of gross domestic product (GDP). This was mostly because of erratic movements in the trading of precious metals, especially non-monetary gold, in the final quarter of 2019 and more subdued trading in Quarter 1 2020.
So we quickly realise that something we have looked at before which is London’s role in world gold markets has cast something of a fog on the numbers again. Things like brokers and exchange fees and insurance count for the UK but the value of the gold is mostly nothing to do with us.
There is another problem with the data series as the numbers below rely on all sorts of assumptions and estimates which may not be true.
The primary income deficit widened by £2.4 billion to £13.6 billion, or 2.5% of GDP, in Quarter 1 2020; this was because of a larger fall in UK earnings on foreign investments than the fall in payments to foreign investors on their UK investments as other countries entered lockdowns earlier and businesses aimed to maintain cash buffers by reducing or cancelling dividend payments.
So we are not doing very well in terms of measuring the position! You do not have to take my word for it as tucked away in the report is something of a confession which I have helpfully highlighted.
The UK’s credits declined more than debits as other countries locked down sooner than the UK, with anecdotal evidence highlighting that businesses distributed less earnings to preserve cash buffers through the pandemic.
Let us move onto numbers which should be more accurate.
Trade in Goods
These were heavily impacted by the arrival of the Covid-19 pandemic especially in March.
This disruption can be seen in the decreases in gross exports to £82.3 billion, the lowest since Quarter 1 2017 (£82.1 billion), and gross imports to £111.6 billion, the lowest since Quarter 2 (July to Sept) 2016 (£104.6 billion).
The detail is no great surprise.
finished manufactured goods, exports by £6.8 billion and imports by £5.5 billion……..semi-manufactured goods, exports by £1.2 billion and imports by £1.8 billion……oil, exports by £1.1 billion and imports by £1.7 billion.
This starts well.
Figure 2 shows that the trade in services surplus widened in Quarter 1 2020 by £4.3 billion to £28.1 billion,
But then shows a bad sign as lower imports are a sign of an economic contraction.
as the import of other business services decreased by £5.8 billion. Overall, the importing of services decreased by £11.1 billion to £49.2 billion, the lowest since Quarter 2 2018 (£48.1 billion);
Then we note exports fell as well.
while the export of services only decreased by £6.8 billion to £77.3 billion, the lowest since Quarter 3 2018 when exports were also £77.3 billion.
You might think that as this is 80% of the UK economy we would get loads of detail but that is all. Well not quite all.
In addition to the decline in the import of other business services, both imports and exports reflect large decreases in travel services as governments around the world introduced travel bans to stem the spread of the coronavirus (COVID-19).
That is pretty shocking and food for thought for Faisal Islam with his focus on a mere £1 million. Regular readers will be aware I pursued the issue of our services trade accounting with Sir Charlie Bean when he did his review into such matters. I hope that one day the “talk” from that report will be matched by action.
The digital revolution and fast technological advancements of recent years, have changed the way many businesses operate (Amazon, Skype), given rise to new ways of exchanging and providing services (Airbnb, TaskRabbit), have muddied the waters between work and leisure, and made it far harder to accurately measure economic output.
International Investment Position
I think that the numbers bingo going on below speaks for itself.
The stock of foreign assets increased by £1.7 trillion to £12.9 trillion, while liabilities increased by a lesser extent of £1.6 trillion to £13.3 trillion. Because of assets increasing more than liabilities, the net liability position contracted by £172.6 billion to £386.9 billion.
Really? Poor old Faisal with his £1 million……Sadly for him it just gets worse.
The unprecedented movements recorded in the IIP were mostly driven by financial derivatives increasing in both assets and liabilities by £1.5 trillion and £1.4 trillion respectively.
As this was my line of work let me point out that there will have been times during the pandemic that those with financial derivative positions will have not known what they were worth. Certainly on March 19th and 20th when the Bank of England and other central banks stepped in. Thus the only way these numbers are accurate would be as a result of quite a fluke. Or to put it another way only about a third of those surveyed on the subject of financial assets and liabilities bothered to reply.
You can already guess what I think of the significance of the change in UK GDP growth from -2% to -2.2% so let me note something else from the detail.
The households saving ratio increased to 8.6% in Quarter 1 2020, compared with 6.6% in Quarter 4 (Oct to Dec) 2019.
This catches my eye because many economists have wanted this. Or perhaps only until we have it.
I would add that these numbers are regularly wrong even in calmer times.
So we see that we are very short of reliable information as to what the state of play was in the economy. let alone what it is now. Yet the Bank of England has ploughed in massively and we see more promises from the government.
Boris Johnson will today pledge £5bn in fast-tracked infrastructure investment as he promises to “build, build, build” the UK’s economy out of the coronavirus crisis.
Drawing inspiration from US president Franklin Delano Roosevelt’s “new deal” after the great depression of the 1930s, the Prime Minister will seek to create jobs and drive investment through a nationwide building campaign. ( City-AM)
An investment of that size is way short of the New Deal, although of course we have had plenty of other interventions. Indeed a past one to boost GDP seems to have stalled somewhat.
Even the usually recession-proof prostitution sector has suffered badly from Covid-19. The ONS estimates (somehow) that UK hholds’ spending on prostitutes fell by a record 7.5% (£114M) q/q in Q1. Only in one other quarter since 1985—Q1 1994—have h’holds also tightened their belts ( @samueltombs )
A popular posting I would imagine. But in truth the numbers are never going to be accurate for obvious reasons.