Today brings the UK back into focus as we have what is called a theme day with data across a wide range of economic influences such as production, manufacturing,services ,construction. trade and most of all GDP ( Gross Domestic Product). Yes it is too many in one go and monthly GDP has already demonstrated a track record of being erratic but that has not deterred our official statisticians. But before we get to that the Bank of England has continued its campaign to talk the UK Pound £ lower over the weekend. Here is the Financial Times from yesterday.
An influential member of the Bank of England’s monetary policy committee has said he would vote for a cut in interest rates later this month if key data do not show a bounce in the economy following the December general election.
Have you guessed who it is? I have to say I would be far from sure as my view is that the other 8 members of the monetary policy committee or MPC exist to say “I agree with Mark (Carney)”. Mind you the Financial Times does love to flatter the establishment as we note that my theme that the other 8 members serve little or no useful purpose these days gets another tick in the box. Anyway here it is.
Gertjan Vlieghe, an external MPC member, said his view on whether to keep waiting for an economic revival or vote to lower rates from 0.75 per cent to 0.5 per cent would depend on survey data released towards the end of January.
That does not rule out a move this month as the meeting is at the end of it with the announcement on the 30th although of course they vote on the evening before. For “live” meetings this so-called improvement by Governor Carney is a really bad idea which has been reinforced recently by the news that hedge funds were receiving an “early wire” during press conferences.
We then get more of an explanation.
“Personally I think it’s been a close call, therefore it doesn’t take much data to swing it one way or the other and the next few [MPC] meetings are absolutely live,” he told the Financial Times. “I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer.”
You might think that after the post EU leave vote debacle when it mistakenly rushed to cut interest-rates because of the surveys the Bank of England might steer clear of relying on them so much.
We will get a lot of information as soon as the end of January,” said Mr Vlieghe. ““We’ll get a lot of business and some household surveys that cleanly relate to the period after the election, so that will give us an initial read as to how people are responding.”
We do get a slightly odd section which suggests that someone at the Financial Times has actually believed all the Forward Guidance mumbo-jumbo.
Financial markets are not currently pricing any movement in rates above the current 0.75 per cent over the next five years.
If you look at the five and two year Gilt yields in a broad sweep they have been suggesting a cut for some months now as regular readers will be aware.
Of course the media keep fooling for this as they get their moment in the headlines as we recall this from Dharshini David of the BBC last May.
Today the Bank of England’s Governor admitted to me that rates are likely to rise faster than the markets expect. So when can we expect the first move? My analysis for
She fell for the promises of the unreliable boyfriend hook line and sinker and in response has blocked me on Twitter.
It is hard not to have a wry smile at the Bank of England moves as the basic data has turned out better than expected. Let is open with today’s main number.
Rolling three-month growth was 0.1% in November 2019, down from an upwardly revised 0.2% in October.
Not much I admit but in the circumstances any growth is okay. Also that sentence is both true and misleading because October was originally reported as 0% but there have been ch-ch-changes since.
The UK economy grew slightly more strongly in September and October than was previously estimated, with later data painting a healthier picture.
We previously were told that both 3 monthly and monthly growth were 0% whereas now they are 0.2% and 0.1% respectively. So we are ahead of where we thought we were in spite of this.
Monthly gross domestic product (GDP) fell by 0.3% in November 2019, driven by falls in both services and production. This followed growth of 0.1% in both September and October 2019.
The monthly numbers are unreliable and are showing hints of a downwards bias as explained below.
However, both September and October 2019 have been revised up by 0.2 and 0.1 percentage points respectively, giving extra strength to the most recent rolling three-month estimate. The revisions to September were predominantly driven by new construction data, whereas October’s revisions were driven by new data in services and production.
It is good that the numbers are improved but the truth is that the variation is presently too high for them to be useful.
As to upwards surprises well the GDP number reinforces one from later on last week.
The latest survey of UK Chief Financial Officers shows an
unprecedented rise in business sentiment. The fourth quarter survey took place in the wake of the UK general election, between 13th December and 6th January. Confidence has seen the largest increase in the 11-year history of the survey taking it to its highest
ever level. ( Deloittes )
If we look for the other side of the coin there is this from this morning.
The monthly decrease of 1.7% in manufacturing output was because of downward contributions from 10 of the 13 subsectors; led by notable falls from transport equipment (3.4%), chemicals and chemical products (4.7%) and food, beverages and tobacco (1.8%).
The November data meant that the last 3 months were poor too.
compared with the three months to August 2019; this was led by manufacturing output, which fell by 0.8%.
If we look into the detail of the November data there is more than a little hope that it was driven lower by factors which we have got used to and in the latter case has been doing well overall.
the motor vehicles, trailers and semi-trailers industry (6.1%), which was impacted by factory shutdowns during November 2019…….widespread weakness from chemicals and chemical products (4.7%), following on from the impact of maintenance and shutdowns.
But the reason I have pointed this out is not only to show the other side of the coin but because this area is seeing quite a severe depression.
Manufacturing output in the UK remained 2.9% lower for the three months to November 2019 than the pre-downturn peak for the three months to March 2008.
It looked for a while that we might escape it but the impact of the trade war left our fingers grasping at air as we now face this.
Additionally, the current three-monthly rolling index level is the lowest since July 2017.
Regular readers will be aware that I thought the Bank of England was readying itself for an interest-rate cut last year. Now with its usual impeccable timing it seems to be forming up as a group just as the economic news shows a hint or two of being brighter. In addition to the data above this months Markit PMI showed an improvement as well albeit to somewhere around flatlining. The Deloittes survey was potentially especially revelant as it relates to business investment which has been weak and thus could have a spell of “catch up” now the political and Brexit element looks clearer. As ironically Gerthan Vlieghe pointed out.
His main expectation was that the UK outlook would improve because there was a reduction in no-deal Brexit risks, plans for increased public spending and better news about a stabilised global economy.
But there is more to it than this as there is the fundamental issue of whether another 0.25% cut will make any difference. Having watched the latest prequel to the Alien(s) series of films over the weekend I am reminded of the words of the little girl Newt.
It won’t make any difference.
If we look at the weakest sector manufacturing all the interest-rate cuts we have seen have not turned things around and prevented a depression. Indeed if we look to Germany as we did only last week even an official interest-rate of -0.5% has not shielded its sector from the present trade war.