The UK economy continues to motor ahead or if you prefer is on drugs

Today sees us advance on some key data for the UK economy as we receive production, manufacturing and trade data. But before we even get to it there has been a warning from France which has already opened the day with something of a conundrum.

In January 2017, output decreased sharply again in the manufacturing industry (−1.0% as in the previous month).

Whereas the Markit PMI ( Purchasing Managers Index ) told us this.

 The index was down from January’s reading of 53.6

We were told that the french economy was doing well in January. From Reuters.

“The expansion was broad-based with marked increases in output evident in both the manufacturing and service sectors, driven by firm underlying client demand. In turn, this filtered through into the labor market.”

Markit has had trouble before with France ironically for producing numbers which were lower than official estimates. But this is another issue for a series which has proved to be disappointing in its accuracy in more recent times.

UK monetary policy

This remains extremely expansionary with the Bank of England adding to its holdings of UK Gilts ( government bonds ) and corporate bonds this week. Indeed at £434.2 billion the UK Gilts part of the QE (Quantitative Easing) program has only one day left but at £8 billion so far there is more corporate bond QE to come. If we add in the £43.9 billion of the Term Funding Scheme we get an idea of the total scale of Bank of England monetary policy in balance sheet terms and that is before we note a Bank Rate set at 0.25%.

The other factor at play is the lower level of the UK Pound £ which post the EU leave vote in the UK has provided an economic stimulus equivalent to a 2.75% cut in Bank Rate if we use the old Bank of England rule of thumb. It would have created quite a shock would it not if we had somehow had the same exchange rate as before but with a Bank Rate of -2.5%!

Today’s data

Production and Manufacturing

Unlike the numbers for the French I quoted above these start brightly for the UK.

In the 3 months to January 2017, total production was estimated to have increased by 1.9%, with manufacturing providing the largest contribution increasing by 2.1%, its strongest growth since May 2010.

However manufacturing output continues to see-saw each month along with the pharmaceutical industry.

In January 2017, total production decreased by 0.4% compared with December 2016 with manufacturing providing the largest downward contribution, decreasing by 0.9%…………The monthly decrease in manufacturing was largely due to a decrease in pharmaceuticals, falling by 13.5%,………. pharmaceuticals can be highly erratic, with significant monthly changes, often due to the delivery of large contracts.

I am glad to see that our official statisticians have caught up with the view that I have been expressing on here for the best part of a year now as this recent pattern began last spring. However if we look back over the past year there is some call for a smile for spring.

Total production output for January 2017 compared with January 2016, increased by 3.2%, supported by growth in all 4 main sectors, with manufacturing providing the largest contribution, increasing by 2.7%.

The pharmaceutical sector is up some 6.1% on a year ago which is good news. But of course that only regains some of the ground which we lost.

Since then, 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 3.3% respectively in the 3 months to January 2017.

What about trade?

This is an ongoing worry for the UK economy that stretches back for around 30 years or so. Actually I recall days when these numbers were considered very important and as a young man working in the City it was “all hands on deck” when they were released. These days they do not get much of a mention especially if they are better because the financial twitter community if I may call it that do quite a bit of cherry picking. But the “same as it ever was” theme continued in January.

The trade deficit in goods and services in January 2017 was £2.0 billion, unchanged from December 2016.

It is odd that such an erratic number is the same for two months in a row but let us take a deeper perspective.

Between the 3 months to October 2016 and the 3 months to January 2017, the total trade deficit (goods and services) narrowed by £4.7 billion to £6.4 billion.

We find some cheer here in the improvement so let us probe further.

At the commodity level, the main contributors to the narrowing of the total trade deficit in the 3 months to January 2017, were increased exports of non-monetary gold, oil, machinery and transport equipment (mainly electrical machinery, aircraft and cars) and chemicals.

So the chemicals numbers are consistent with the reported growth of the pharmaceutical industry which is a relief as they do not always coincide. Also increased production and thence exports of vehicles has helped.

The latest data shows that passenger motor vehicles were the UK’s second highest exported commodity behind mechanical machinery in 2016. The value of cars exported by the UK increased by 14.8% in the year to January 2017 with export growth stronger to non-EU countries (17.9%) compared with the EU (10.0%).

Indeed if you want something hopeful take a look at this.

However one of the problems with these statistics is that they are unreliable and frequently heavily revised. For the UK this is a particular issue as the numbers for the service sector are collected quarterly at best. However this time the revisions were cheerful ones.

The trade in services balance (exports less imports) has been revised upwards by £2.7 billion in Quarter 4 2016, to a trade surplus of £26.6 billion. This reflects an upwards revision of £1.7 billion to exports, and a downwards revision of £1.0 billion to imports.

So a nudge higher for UK GDP (Gross Domestic Product) growth in the last quarter of 2017 although not enough to be especially material.

Another way of looking at this is to note how few countries we do so much of our trading with.

In 2016, nearly 50% of all UK exports of goods went to just 6 countries: the United States, Germany, France, Netherlands, Republic of Ireland and China. The United States are our biggest export partner, receiving 15.7% of all UK exported goods.

The UK’s largest import partner was Germany in 2016, supplying 14.8% of all goods imported to the UK. Similar to exports, over 50% of the UK’s imports of goods come from 6 countries: Germany, China, United States, Netherlands, France and Belgium.

Comment

This morning has seen some more relatively good news for the UK economy. The pattern for production and manufacturing has been relatively solid if erratic on a monthly basis and if we add in the noted improvement to services trade there is good news here. The worry ahead is of course the impact of inflation on the economy mostly via its impact on real wages. I note that according to the Bank of England’s latest survey the ordinary person is noticing it.

Asked to give the current rate of inflation, respondents gave a median answer of 2.7%, compared to 2.3% in November………. Median expectations of the rate of inflation over the coming year were 2.9%, compared with 2.8% in November.

They seem much more in touch with reality than the 2.4% for 2017 forecast by the Office for Budget Responsibility on Wednesday.

For those who follow the UK construction sector the numbers are below, but take them with not just a pinch of salt and maybe the whole salt-cellar.

Construction output fell by 0.4% in January 2017, following consecutive rises in November and December 2016 (0.8% and 1.8% respectively).

Greece meets its final countdown one more time

A constant sad theme of this website has been the way that Greece got into economic trouble and then had a so-called “shock and awe” rescue which made everything worse and plunged it into what can now be called a great depression. Last week’s official national accounts detail just continued the gloom.

The available seasonally adjusted data indicate that in the 4 th quarter of 2016 the Gross Domestic Product (GDP) in volume terms decreased by 0.4% in comparison with the 3 rd quarter of 2016, while it increased by 0.3% in comparison with the 4 th quarter of 2015.

I pointed out last week that the trumpeting of European Commissioner Moscovici only a day before was in very bad taste.

After returning to growth in 2016, economic activity in is expected to expand strongly in 2017-18.

You see Monsieur Moscovici and his colleagues have a serial record of saying a recovery is just around the corner. For example the 0.3% annual increase in GDP compares with 2.9% forecast in the spring of 2015.  There is a familiar theme here because if we look at the forecasts from the spring of 2016 they forecast more or less the same ( 2.7%) for 2017. This repeated failure where an optimistic forecast bears no relationship to reality has gone on since 2012 which was when the original 2010 bailout forecasts told us Greece would return to economic growth and from 2013 onwards would grow by you’ve guessed it by 2%+ per annum. As PM Dawn told us.

Reality used to be a friend of mine
Reality used to be a friend of mine
Maybe “why?” is the question that’s on you mind
But reality used to be a friend of mine.

The truth was that Greece had to be forecast as growing as otherwise the national debt numbers would look out of control and could not be forecast to be 120% of GDP in 2020. That was a farcical benchmark which exploded as it was chosen so as not to embarrass Portugal and Italy who cruised through it anyway. Greece of course blasted through it and the major reason was the economic depression.

The Great Depression

I will keep this simple so GDP in the third quarter of 2008 was the peak for Greece at 60.8 billion Euros and at the end of 2016 it was 44.1 billion Euros. So a decline of 27.5% which certainly qualifies as a Great Depression.

Austerity

Macropolis has pointed out the scale of the austerity applied to Greece and let us start with taxes.

The Greek economy has been burdened with 35.6 billion euros in all sorts of taxes on income, consumption, duties, stamps, corporate taxation and increases in social security contributions. When totting all this up, it is remarkable that the economy still manages to function.

Of course you could easily argue that in more than a few respects it does not function as we switch to the expenditure or spending ledger.

During the same period, the state has also found savings of 37.4 billion euros from cutting salaries, pensions, benefits and operational expenses.

So 5 months worth of economic output at current levels. Also like a dog chasing its tail they cry has gone up for what can be called “Moar, moar”.

The IMF’s Thomsen, now the director of its European Department, recently argued that Greece doesn’t need any more austerity but brave policy implementation. Somehow, though, the discussion has ended up being about finding another 3.5 billion euros in taxes and cuts to pension spending.

Of course dog’s have the intelligence to eventually tire of chasing their tale whereas the Euro area establishment continue with the same old song.

The official view

The ESM or European Stability Mechanism is the main supplier of finance to Greece these days and its head Klaus Regling has this on repeat.

Then, public creditors eased lending conditions significantly. This reduced the economic value of the country’s debt by around 40 per cent. As a result, Greece enjoys budgetary savings of about €8 billion annually — the equivalent of about 4.5 per cent of gross domestic product — and will continue to do so for years to come.

Sometimes what is true can be misleading. You see it is summed up in the word timing. Greece had an austerity program front loaded onto it and it was hit hard by it as I have described. Later the Euro area changed tack and made the loans much cheaper but by then it was too late as Greece was plunging into an economic depression at a rate exceeding 8% per annum in 2011 and much of 2012.

In spite of the calamitous situation Klaus told the Financial Times in late January  that the future was bright.

Greek debt levels are no longer cause for alarm

Of course Klaus has to churn out such a line in an attempt to distract attention from this.

The European Financial Stability Facility and the European Stability Mechanism, the eurozone’s rescue funds, have disbursed €174 billion to Greece.

This brings me to a point where Bloomberg are to some extent peddling what might be labelled fake news today.

The 2-year yield is now 180 basis points higher than the 10-year yield

You see Greek bond yield twitter if I may put it like that refers to something which exists but is not the source of funding for Greece any more a reflects a market which as I have pointed out many times barely trades. Even Bloomberg points this out.

volumes are low, with just 26 million euros trading during January on the inter-dealer platform.

With volumes so low it is easy for those with vested interests to manipulate such a market.

Trouble ahead

Where a crunch can come is when a bond needs redeeming. This is where all the proclamations to triumph and success met a hard reality of a lack of cash or another form of credit crunch. Eyes are already turning to July on that front.

Greece faces a few maturities in the coming months, but the heavy lifting is in July, when 6.2 billion euros of debt matures.

This is the capital issue I highlighted on the 30th of January.

We can bring in that poor battered can now because the Euro area and the IMF thought they had kicked it far enough into the future not to matter whereas the IMF is now having second thoughts.

The Euro area can talk all it likes about interest repayments but this ignores the fact that it cannot repay the capital which might make Euro area taxpayers mull another of the promises of Klaus Regling.

We would not have lent this amount if we did not think we would get our money back.

In a couple of months time another 1.4 billion Euros is due. This is owed to the ECB and we know that the first rule of it’s debt fight club is that every last cent must be repaid.

The IMF

My theme about the IMF has been that it has been twisted by politicians so that it no longer is an institution dealing with trade balance problems. The Greek data for 2016 bear this out as with all the improvements Greece should be exporting more especially as many of its economic partners had a better economic year.

The total value of exports-dispatches, for the 12-month period from January to December 2016 amounted to 25,411.4 million euros (28,198.4 million dollars) in comparison with 25,879.3 million euros (28,776.8 million dollars) for the corresponding period of the year 2015, recording a drop, in euros, of 1.8%

So simply no as we mull again the lack of economic reform in Greece and note that the trade issue got worse and not better.

The deficit of the Trade Balance, for the 12-month period from January to December 2016 amounted to 18,551.2 million euros (20,310.3 million dollars) in comparison with 17,745.3 million euros (19,439.6 million dollars) for the corresponding period of the year 2015, recording an increase, in euros, of 4.5%.

Comment

Today’s Eurogroup meeting in Greece is being badged as a “last chance saloon” which of course is a phrase that long ago went into my financial lexicon for these times as it occurs so regularly. Still did the band Europe know how much free publicity the future would provide for their biggest hit?

It’s the final countdown.
The final countdown

Meanwhile as its economic prospects are kicked around like a football Greece itself is pretty much a bystander. If only it was a final countdown to a default and devaluation meaning it would leave the Euro. Meanwhile some reports are bizarre as this from the fast FT twitter feed last week proves.

Greece made a stunning exit from three years of deflation and low price growth in January

Greek workers and consumers however will be rueing any rises in prices as we wonder how higher prices in the UK can be a disaster according to the FT but higher prices in Greece are “stunning”?

Podcasts

I have been running a private trial of putting these updates out as podcasts as the world continues to change and move on. I thought I would ask how many of you use podcasts?

It is UK trade and exports that George Osborne should be worried about

Yesterday was something of a strange day for analysis of the UK economy as the Chancellor of the Exchequer gave a rather odd speech in Wales. To get a full idea of the change I would like to take you back to as recently as November 25th for his Autumn Statement. Here is a flavour of it.

Since 2010, no economy in the G7 has grown faster than Britain……Our long term economic plan is working…..growth is then revised up from the Budget forecast in the next two years, to 2.4% in 2016 and 2.5% in 2017.

Also there was the wrapping of his optimism in the flag of the Office for Budget Responsibility.

The OBR has seen our public expenditure plans and analysed their effect on our economy. Their forecast today is that the economy will grow robustly every year, living standards will rise every year, and more than a million extra jobs will be created over the next five years.

So in short happy days were ahead conveniently funded by the OBR finding quite a lot of money down the back of its forecasting sofa. This posed yet another question for the role of the OBR which has been sucked back into the UK establishment in my view. There were opposing views such as ex Bank of England economist Tony Yates who said that such views were absurd.

Quite a change

This was a doppelganger of “yesterday all my troubles were so far away” as in the intervening 6 weeks or so there seems to have been something of a quantum reversal.

I worry about a creeping complacency in the national debate about our economy.

Do you mean the creeping complacency that you spread on the 25th of November George? Anyway let us look at his explanation.

Last year was the worst for global growth since the crash and this year opens with a dangerous cocktail of new threats from around the world.

Ah it’s somebody else’s fault! What can we do then?

2016 is the year we can get down to work and make the lasting changes Britain so badly needs….. This year, quite simply, the economy is mission critical. We have to finish the job.

This is really quite a confession as after all he has been Chancellor for over five years now so what has been happening in that period if we now need “lasting changes”? Odd when we were told only in November that the “difficult decisions” had been taken “when I presented my first Spending Review” back in the summer of 2010.

Indeed we got a warning which was not far off apocalyptic.

Or it’ll be the year we look back at as the beginning of the decline.

Actually if people were to decide the UK was in decline surely they would look back to the beginning of his Chancellorship in May 2010. But those like me who criticised the OBR back in November will be wondering what has happened to the £27 billion boost they found down the back of their sofa? It does not seem to have lasted long.

We did get a reference to monetary policy that the Chancellor is likely to regret.

Let’s be clear, higher interest rates are a sign of a stronger economy.

There are two issues here. Firstly he is highlighting something that the Bank of England has moved away from as I discussed only on Monday. The idea previously pushed by Governor Mark Carney back in June 2014 that they would rise “sooner than markets expect” or in the summer of this year that they would “come into focus around the turn of the year” is to use my song of the day so yesterday. Perhaps nobody has told George yet. Actually that critique seems to apply to the UK’s political class in general as the Shadow Chancellor John McDonnell parroted a very similar line. Also I would imagine that many of you are wondering why if interest-rates are a sign of a stronger economy we have had an “emergency” 0.5% Bank Rate for nearly 7 years!

Also if something is proving to be useless you have to big it up.

So I’ve created a powerful new Financial Policy Committee in the Bank of England

According to the Halifax UK house prices are rising at an annual rate of 9.5% whilst the FPC is wondering whats on the lunch menu?

Trade is a problem for the UK

Yesterday I exchanged some data with Andrew Sentance about UK exports and today one part of the trade figures backs up his argument.

UK export growth averaged 5.6% per year over the past 20 years, between 1994 and 2014

This is rightly called a “strong performance” but there is a rub as shown below.

UK’s export growth has been relatively low among the G7 since 2012. UK exports fell by 1.5% in 2014, the only country in the G7 to see negative export growth.

Regular readers will be aware of my argument that the Bank of England made a mistake in 2012 by rebalancing the UK economy towards the housing market in the summer of 2012 via its mortgage and banking subsidy effort called the Funding for Lending Scheme. Is it a coincidence that as the UK obsessed about house price gains our eye was not on the ball of export growth? I would argue not. There are always issues with any extrapolation so take care but the number below provides food for thought.

estimates for 2014 suggest that UK goods exports were 8.7 percentage points below their long run average.

How has this come to be? Well take a look at the breakdown.

UK goods exports, in nominal terms, have been contracting at an average rate of -1.6% since 2012, and have been at the bottom of the G7 range. In 2014, UK goods exports fell by 4.1% – the only G7 economy to see negative growth. This was also the lowest growth rate seen since 2009.

The bright light for the UK for so long has been services exports as shown below.

UK exports of services, in nominal terms, have been close to the top of the G7 range since 1994 and consistently saw positive growth. They have grown at an average rate of 7.6% in each year over the 20 year period- which was also the highest average growth rate among the G7 countries

It is nice for us to be able to bask in the pleasure in being the top of a positive league table. However here too our eye seems to have drifted off the ball.

Recent data suggests that UK exports of services slowed in 2014 compared to 2013 by 6.5 percentage points, down to 2.3%. UK exports of services had the lowest positive growth rate in 2014 compared with its G7 counterparts, growing by 2.3%.

A (space) oddity

Apologies as there are actually two. Let me open with the rather odd development that in a booming economy we seem to be importing less.

Imports decreased by £1.2 billion (1.1%) to £101.7 billion in the 3 months to November 2015

Some of that is oil but by no means all of it. Also in spite of the recovery in many of our trading partners in Europe we are exporting less as well.

Exports decreased by £0.3 billion (0.5%) to £71.0 billion in the 3 months to November 2015

A little awkward which even if we allow for lower oil prices has us mulling the fact that world trade seems to be in decline in an apparent boom.

Trade feeds into economic growth

Apologies for a statement of the obvious and let me switch to the more precise net trade feeds into economic growth. This really is something for George Osborne to worry about in my opinion. From today’s UK Economic Review.

The drag from net trade on GDP growth

As we look into the detail we see this.

This has largely been driven by the absence of growth in the export of goods, which in Q3 2015 were 1.7 percentage points lower than the average level in 2008 (as a percentage of nominal GDP), while the import of goods increased by 1.1 percentage points over the same period.

It has been a dragging anchor on the UK economy and its GDP in the credit crunch era as the latest quarter indicates..

Net exports pulled down GDP growth slightly by 0.2 percentage points, for the quarter on quarter a year ago growth, but by 1.0 percentage point for quarter on quarter growth.

Comment

This morning’s UK Economic Review sort of backs George Osborne and the OBR’s past optimistic position.

this still represents the eleventh consecutive quarter of GDP growth and continues the positive trend in rising output that started in 2013.

However the new “realism” seems to have come from this development.

Growth averaged 0.5% during the first three quarters of 2015, following growth of 0.7% per quarter during 2014.

In economic terms as we review the situation we see that according to the ONS (Office for National Statistics) analysis of this morning the issue is mainly one of trade. Odd that the Chancellor failed to point that out.

Also this is something of a record for even the hapless OBR as only 6 weeks later even the Chancellor has abandoned its forecasts. Time to put it out of its misery.

We are good Europeans

The credit for this never seems to quite arrive at our door but look what we have been doing to help the rest of Europe.

This resulted in a widening of the trade in goods deficit with EU countries to a record level of £22.9 billion in the 3 months to November 2015 compared with the 3 months to August 2015.

There is something rotten in the state of Denmark

One of the most famous quote in literature so let me apply it to the Nationalbanken which did this yesterday.

Effective from 8 January 2016, Danmarks Nationalbank’s interest rate on certificates of deposit is increased by 0.10 percentage point.

They do not seem to be keen on pointing out that it makes the new rate -0.65% so let me help out. But who outside the world of central banking thinks that a 0.1% change in interest-rates materially changes anything? It will be a long road back to 0% at this rate! Also the costs of changing interest-rates around the economy seem likely to outweigh any benefit. So let me leave you with a musical summary from the nutty boys.

Madness, madness, they call it madness
Madness, madness, they call it madness
I’m about to explain
A-That someone is losing their brain
Hey, madness, madness, I call it gladness, yee-ha-ha-ha

 

 

 

 

 

How long can the UK keep running its Balance of Payments deficit?

The recent period of expansion has been very welcome for the UK economy but it has come with a handicap which is familiar to students of UK economic history. However general analysis of the situation is very different to the past and a considerable amount of complacency is displayed. But even the Bank of England has its concerns. From the latest Financial Policy Committee Minutes.

The Committee discussed the potential risks relating to the UK current account deficit position. The current account deficit had widened to 6% of GDP in Q3 2014 which was high by historical standards in the United Kingdom and elsewhere.

They then spend some time concluding that this is really okay (which if so begs the question of why they raised the matter!) After all does anybody actually believe the hype in the sentence below.

Moreover, to the extent that fiscal policy was credible and investors were confident in the monetary and fiscal policy frameworks and the United Kingdom’s continuing openness, current account deficits would be easier to finance.

In the current election debate I have mostly only seen incredible efforts on fiscal policy and monetary policy is still at the emergency Base Rate of 0.5%. Oh well. the result of all of this was the classic bureaucrats solution.

The Committee agreed to keep their assessment of this risk under close review and would monitor the maturity and liquidity of the financing of the deficit

Should the horse ever bolt they will be there to close the stable doors afterwards!

Step Back In Time

If we go back to 1967 then things were very different as in November the UK government devalued the exchange rate of the UK Pound £ from US $2.80 to US $2.40 in response to a balance of payments crisis. You may have a wry smile at the numbers involved. From The Sterling Devaluation of 1967.

That deficit was estimated at the time to be approaching £800m, but later revised down to nearer £300m.

Of course our minds have been distorted by the financial inflation of these times so let me convert the numbers for you as the panic of the times was caused by a current account deficit of around 2% of annual economic output or GDP. Putting that another way it was somewhere around a third of the number being discussed by the FPC.

There are of course differences as a fixed exchange rate puts more pressure on such matters as those in the Euro area and of course Denmark and Switzerland have discovered in recent times. But you see here we have something of a (space) oddity as the present UK balance of payments problem has been accompanied by a rising exchange rate for the pound. Since the recent nadir of March 2013 the trade weighted index has risen from 77.9 to 90. So one more time we need to tear a page out of economic textbooks. Or to put it another way it would not be the best of times to ask HAL 9000 to open the pod doors if you were out in space!

Also you may note another feature of balance of payments numbers which is their inaccuracy. Due to later revisions which were years and sometimes decades in the making it was discovered that the 1967 Sterling Devaluation one of main symbolic points in UK economic history was unnecessary. As the Rolling Stones put it so aptly about accurate economic statistics at around that time.

You can’t always get what you want
You can’t always get what you want

 

Today’s Numbers

We get an idea of the position in the early part of 2015 from this.

Seasonally adjusted, the UK’s deficit on trade in goods and services was estimated to have been £2.9 billion in February 2015, compared with £1.5 billion in January 2015. This reflects a deficit of £10.3 billion on goods, partially offset by an estimated surplus of £7.5 billion on services.

So a more hopeful picture for January seems to have been replaced by a same as it ever was February. Even the more hopeful picture involved a deficit as it is quite some time since we had a surplus of any sort. Also the January numbers had a familiar feature.

The total trade balance in January was revised downwards by £0.9 billion from the January 2015 UK Trade release

So not only are the numbers unreliable it is good news that is particularly so. This leaves us with a continuing issue.

In the 3 months to February 2015, the trade in goods deficit narrowed by £0.1 billion to £29.4 billion.

Also those who argue for trade benefits from our membership of the European Union would do well to mull the number below.

In the 3 months to February 2015, the trade in goods deficit between the UK and countries within the EU reached a record high of £21.1 billion, since comparable records began in 1998.

A little care is needed as we have a surplus for services but the position above is dire.

Is there any hope?

There is a thematic hope for the UK economy and it comes from the services sector where we put in a strong performance as shown below.

The surplus on trade in services was estimated to be £7.5 billion in February 2015.

Somewhat bizarrely the actual number is £7481 million. Why is this bizarre? Well actually they have nothing like this level of accuracy as they confess here.

However, the information on trade in services is
mainly obtained from quarterly surveys, in some cases underpinned by larger annual surveys. That means that the data for the latest months are inevitably uncertain.

A cursory examination of the one page of detail we get on services trade would miss that as would anybody who looks at numbers measured to £1 million. I analysed this issue in reference to the UK “productivity puzzle” on the second of this month and concluded that we need to get more accurate numbers for this area as our view of our economy could be transformed and would as a minimum be more reliable. After all we do live in an information age don’t we?

But the picture such as we have it is of an improving position illustrated by our services surplus being revised up by around 10% on a year ago.

Also the lower oil price is helping us as whilst we produce oil we are a net importer. Although if today’s news from UK Oil & Gas Investments Ltd comes to fruition maybe….

London quoted UK Oil & Gas Investments PLC (LSE AIM: UKOG) is pleased to announce that US-based Nutech Ltd (“Nutech”), one of the world’s leading companies in petrophysical analysis and reservoir intelligence, estimate that the Horse Hill-1 (“HH-1”) well in the Weald Basin has a total oil in place (“OIP”) of 158 million barrels (“MMBO”) per square mile,

Of course they will only be able to get to a relatively small proportion of that and such announcements are prone to what I shall politely call hype but it could be a bonus.

Comment

The complacency over the UK Balance of Payments has partly been driven by the fact that we have been numbed by year after year of deficits. So there is a natural tendency to assume that the problem does not matter. What could go wrong? Well this as I pointed out on the 2nd of this month.

In 2014, the UK’s current account deficit was £97.9 billion, up from a deficit of £76.7 billion in 2013. The deficit in 2014 equated to 5.5% of GDP at current market prices. This was the largest annual deficit as a percentage of GDP at current market prices since annual records began in 1948.

A factor here was a decline in our net international investment position partly created by the years of other deficits. There are flickers of hope for marginal improvements so far in 2015 but of course the numbers are unreliable. I also believe as I wrote on the 2nd of this month that we underestimate our services performance but if this was a bomb it is ticking albeit apparently slowly.

On the subject of the strength of the UK Pound I wonder how much of that has been driven by demand for UK assets such as property from abroad. In the vast sums of foreign exchange it may seem small but at the margin such things matter. Perhaps our greatest economic success of these times will be considered to be the sale of overvalued houses to foreigners!

You’re Unbelievable

I was reminded of this from EMF when I read this and in case you do not know he is the Governor of the Central Bank of Ireland.

@INETeconomics Direct bailout of the banks has been relatively small say @PatrickHonohan

 

I guess “relatively small” goes into my financial lexicon for these times.