Today brings us a raft of data on the UK economy including something relatively new which is the monthly update or economic growth or GDP (Gross Domestic Product). This is part of the new structure where we get the quarterly numbers a couple of weeks later than we used to, which is a good development in terms of them being based on more hard data. But it is not clear to me that having monthly GDP adds an enormous amount to what we know with the data of it being somewhat erratic and perhaps plain wrong.
Anyway we will be able to compare the number for July with the business surveys we have which in the case of the Markit PMI have told us this.
No change is expected at Threadneedle Street on Thursday when the Bank of England meets to set interest rates. The resilient pace of growth signalled by recent PMI surveys will have come as some relief after the August rate hike, but it seems likely that the Monetary Policy Committee will await further news on the economy amid the intensifying Brexit process before tightening again. Rates could rise sooner than March of next year if clarity on the Brexit deal comes earlier, however this seems an unlikely scenario.
Actually they have omitted to point out that they believe the UK economy will grow by 0.4% in this quarter although the jury is out as to whether that is resilient. Compared to the weak monetary data it is but they are not followers of it. Also is there anyone who believes the Bank of England might raise interest-rates at its policy meeting on Wednesday/Thursday? Frankly the list of people who believe it will raise any time soon might not stretch much beyond Markit.
If we stay with the Bank of England its Governor Mark Carney will have smiled at this from the economics editor of the Financial Times over the weekend.
The gambit worked. Britain soon regained economic stability.
Yes he apparently single-handedly restored the UK economy after the EU Leave vote a view I find simply breath-taking. But wait there was more.
The weeks after the referendum defined the reputation of the Canadian at the helm of the BoE and have now earned him two extra years in the post.
Yet later came rather a list of problems which exemplify the phrase “unreliable boyfriend”.
Too often his predictions have proved false. He promised to serve only five years because there are limits to the time anyone can cope with such a punishing job, but will now stay for seven; he said a Leave vote risked a recession that has not materialised, and wrongly predicted that the first rise in UK interest rates above 0.5 per cent was looking likely at the end of 2014.
A more rational and composed assessment would be that yes he did his job on the day after the EU Leave vote but that there is a much longer list of failures. Also I note that the FT has omitted pumping up house prices as one of his failures. Added to that a failing that he was also criticised for in his time at the Bank of Canada is presented as a strength.
It is rare to find central bankers as willing to take a brave stance on important political questions.
Also it is nice of the FT to admittedly very belatedly confirm my long-standing view on his real objectives.
Having agreed to extend his term at Threadneedle Street, Mr Carney need not worry about the merry-go-round of international top jobs.
Did we miss the news that he had extended his term? If so someone needs to inform the Bank of England website.
Mr Carney has announced that he will serve to 30 June 2019
Good news for the UK economy
This morning has brought some sunshine for the UK economy.
Rolling three-month growth in July 2018 was the highest since August 2017, when it was also 0.6%. This continued a pickup from flat growth seen in April 2018.
As is regularly the case this was driven by the services sector.
with a rolling three-month growth of 0.6% in the services industries resulting in a large positive contribution. Production industries had growth of negative 0.5%, dragging on GDP growth. However, construction had a larger contribution to GDP growth than last month, with a large rolling three-month growth of 3.3%.
The strong construction performance rather nicely coincides with my own measure where I count the cranes along Nine Elms between Battersea Dogs and Cats home and Vauxhall Cross. This has risen to a record of 40 which does not count the 2 just before the Dog’s home nor the 6 the other side of Vauxhall Bridge.
Putting it chronologically this was driven by a strong performance in the month of July.
The month-on-month gross domestic product (GDP) growth rate was 0.3% in May 2018, 0.1% in June and 0.3% in July.
Whilst welcome this to my mind highlights a problem with monthly data. Do we really believe that as a pattern where we have two really good months and a poor one? The problems with highlighting monthly data are shown by an area which is a strength of the UK economy.
Within this industry, architectural and engineering activities was the largest contributor with a monthly growth of 4.4%, although this follows a month-on-month growth rate of negative 2.6% in June.
As you can see the June data was rather poor whereas if we take some perspective we note this.
This industry has shown substantial growth over the past two years.
There is another area where a local guide is performing well as I note the Movie Makers vans and lorries currently residing in Battersea Park.
motion pictures, which increased by 4.1%, contributing 0.04 percentage points
Let us move on with only one cloud in our sunny skies.
Rolling three-month manufacturing growth to July was negative for the fifth consecutive rolling period at negative 0.1%.
We advance on this data with some trepidation as it is a perennial problem for the UK.
The total UK trade deficit (goods and services) narrowed £1.4 billion to £3.4 billion in the three months to July 2018. Removing the effect of inflation, the total trade deficit narrowed £2.0 billion to £2.5 billion in the three months to July 2018.
If we look at this in terms of the good, the bad, and the ugly we see the following.
The total UK trade deficit (goods and services) narrowed £13.8 billion to £17.0 billion in the 12 months to July 2018. ………The main driver was the trade in services surplus, which widened £8.4 billion to £117.1 billion in the 12 months to July 2018; services exports rose £10.7 billion compared with £2.3 billion for imports………The goods deficit narrowed £5.4 billion to £134.1 billion in the 12 months to July 2018; exports of goods increased £20.2 billion, while imports of goods rose by a lesser £14.8 billion.
The good is plain to see via the improvements seen but that also illustrates the bad as even with good news we still have a deficit. The ugly part comes in when we note that our deficits have lasted not only for years but also for decades.
Today has brought good news on the UK economy and we should consider how much it changes our view on economic events. To my mind only a little as at least some of this is if you like a “catch-up” from the weak weather related data seen around the end of the first quarter. The overall view of around 0.4% quarterly growth still holds true as we wait to see what happens to the monetary data. As to the trade figures any improvement is welcome although I have ongoing doubts about their accuracy.
Moving to the Bank of England the GDP data will put a positive gloss on its August Bank Rate rise although of course it is supposed to look forwards and not backwards, as today’s data precedes it. Also I note an example of what the French call plus ça change, plus c’est la même chose. Remember this?
I have therefore decided that pre-release access to ONS statistics will stop with effect from 1 July
2017. ( National Statistician John Pullinger)
Whereas rather than being officially told they are now unofficially told or something like that.
, exceptional pre-release access for the Bank of England has been granted for this release.
would only be considered in exceptional circumstances, where denying such access would significantly impede the taking of action in the public interest.
As the policy meeting is this week I can see no such exceptional circumstances.