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.


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.


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%.


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”?


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?

Good news for the UK economy and GDP

Today we embark on a raft of UK economic data but before we even reach it the Financial Times has returned to the most familiar theme in UK economic life.

There is a very cool-looking apartment on sale across the street from Harrods in London. It has three bedrooms, beautiful high ceilings, striking contemporary art on the walls (not included in the sale) and a roomy kitchen done out in glossy white wood and chrome. It is not cheap at £7.25m, but it is an awful lot cheaper than it was last year.

The flat was first listed on March 1 2016 for £8.25m. In July, about three weeks after the EU referendum, its price was cut; then it was cut again in December. Today it is available for about 12 per cent — or a full £1m — less than the original asking price.

Actually that looks like a PR puff piece or indeed advertising dressed up as journalism. But we do move onto an area where the FT has caught up with us in here which is the fact that house prices have been seeing falls in central London.

A quick glance at the property website Zoopla reveals that reductions of 15 to 20 per cent for London homes priced above £1m are not uncommon. According to its research department, more than a third of homes on sale in Kensington and Chelsea have had their asking prices reduced by an average of 7.97 per cent.

The FT typically tries to blame Brexit but then finds someone who thinks it has provided a boost! That comes from this.

After the result was announced, and the pound fell to its lowest level against the dollar for 31 years, the spending power of those buyers with dollars in their pockets escalated wildly. Up about 11 per cent on the currency play alone.

Which means overall we see this.

However, once you factor in the decline in London house prices over the intervening six months, you are looking at some serious markdowns indeed. Knight Frank calculates an effective dollar discount of 22 per cent, between December 2015 and December 2016.

So there you have it the message from the Financial Times is to sing along with the band Middle of the Road about central London property.

Ooh-We, Chirpy, Chirpy, Cheep, Cheep
Chirpy, Chirpy, Cheep, Cheep, Chirp
Let’s go now

If we move on from what in some cases is the equivalent of specific property pimping there are issues here. One is simply the price as we mull if even if a one bedroom property is in Covent Garden it can be considered cheap. Also we need to compare the recent falls which estate agents emphasis with the previous rises which they do not. Next comes the issue that the flipside of a lower £ is that existing owners have lost money in their own currency. Also looking forwards the real issue for many is what you expect the UK Pound £ to do next as the future of course matters much more than the past in that regard.
There is much for me to mull on my next cycle ride into the City as once I pass Battersea Dogs Home then here I am.

Some units at Nine Elms, a new residential development in Battersea, are being marketed at about £1,300 per sq ft, after already being given sizeable reductions, according to Zoopla. For £1,300 per sq ft, you could buy a historic apartment overlooking the Duomo in Florence, or a glossy new-build apartment in Miami Beach.

Is that cheaply expensive or expensively cheap?

Boom Boom UK

It is nice to end the week with some really good news for the UK economy so let us get straight to it.

In December 2016, total production was estimated to have increased by 1.1% compared with November 2016; the only contribution to the increase came from manufacturing……manufacturing provided all the growth, increasing by 2.1%.

So an upwards push to production from manufacturing which did this.

The increase in total production was due to broad-based increases in manufacturing. Pharmaceuticals (which can be highly erratic) provided the largest contribution to the growth, increasing by 8.3%. Other large contributions to the increase came from basic metals and other manufacturing and repair not elsewhere classified, which increased by 4.5% and 3.7% respectively.

So in an, if I may put it this way Trumpton era we find that we are en vogue by boosting manufacturing? We need to dig a little deeper though as pharmaceuticals have had a good 2016 but via a volatile path.

in December 2016 compared with December 2015, total production output increased by 4.3%. All main sectors increased, with the largest contribution provided by manufacturing

They seem a little shy of telling us that manufacturing rose by 4% so let me help out. That was driven by pharmaceuticals being up by 19.1% which illustrates their volatility. This left us with positive numbers for 2016 for both production (1.2%) and manufacturing (0.7%).

If we continue with the good news theme then we have some hope of a further upwards revision to UK GDP for last year. This is the reply I received from our statisticians in what was an excellent service.

IOP and Construction combined have an impact of 0.04%. This is nearly all from IOP. ( @StatsKate )

For newer readers I have little or no faith in the official construction numbers which in the words of Taylor Swift have seen “trouble, trouble,trouble” but for completeness here they are.

Compared with December 2015, construction output increased by 0.6%, the main contribution to this growth came from new housing work.


Even these had a good news tinge to them this morning.

The UK’s deficit on trade in goods and services was £3.3 billion in December 2016, a narrowing of £0.3 billion, which is contributing to the narrowing in Quarter 4 2016.

So let us look further.

The UK trade deficit on goods and services narrowed to £8.6 billion in Quarter 4 (Oct to Dec) 2016, following a sharp widening of the deficit in Quarter 3 (July to Sept) 2016; this narrowing was predominantly due to an increase in exports of goods to non-EU countries.

Have UK industry and businesses got the new post EU leave vote vibe? I think that it is too pat a conclusion but we did see this.

there was a much higher quarter-on-quarter growth in exports to non-EU countries in Quarter 4 2016, following a fall in Quarter 3…….Exports of goods to non-EU countries rose by 17.3% to £43.8 billion between Quarter 3 2016 and Quarter 4 2016.

So some of it was a simple rebound.


Today has seen some rather good news for the UK economy as in spite of a drag from the continuing maintenance of the Buzzard oil field production was pushed higher by strong manufacturing data driven by the pharmaceutical industry. Added to this construction at least did not fall and on a quarterly basis the trade figures were better. So there is upwards pressure on the preliminary GDP report although we cannot say exactly how much yet.

There are two main clouds in our silver lining. These are simply  that we have yet another trade deficit in an extremely long series and some perspective on production.

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 7.6% and 4.2% respectively.

A Bank of England for the 0.0000000000000000000001%

Yesterday saw the announcement that Charlotte Hogg was to be promoted to Deputy Governor and it raised this issue.

Dear Mark Carney does promoting a daughter of a Viscount and a Baroness come under the Bank of England Diversity banner?

It certainly comes under the minority banner as I am no expect on Debretts but do wonder if she is in to coin a phrase, a class of one? Oh and it appears that Kristin Forbes is singing along to “We gotta get out of this place” by Blue Oyster Cult.

So if you hint at an interest-rate rise your current lifespan at the Bank of England appears to be 48 hours!

The UK economy is doing pretty well but inflation is on the cards

Today is a day where we await a raft of UK economic data under what is called an improvement by the Office for National Statistics. I have learnt to be circumspect about such things as for example the recent online improvement by the Bank of England means that it is harder to find things. However the UK economy has started 2017 in apparently pretty good shape highlighted by this already today.

We had a record Christmas week, with over 30 million customer transactions at Sainsbury’s and over £1 billion of sales across the Group.

Of course that is only one supermarket but more generally we have been told this.

The British Retail Consortium said a strong Christmas week boosted spending growth in December to a year-on-year rate of 1.7 percent, up from 1.3 percent in November.

Like-for-like sales – which exclude new store openings – saw annual growth of 1.0 percent, up from 0.6 percent in November.

So it would appear that the consumer is still spending and you may not the gap between these figures and the official ones. This shows us I think how much spending these days bypasses conventional retailing. Along the way I found some perhaps Second Hand News on the Sainsbury’s twitter feed.

Rumours? No, it’s true! Rumours by Fleetwood Mac was our number 1 selling Vinyl of 2016.

Business Surveys

The Markit PMIs released last week were rather upbeat too.

“Collectively, the PMI surveys point to the economy growing by 0.5% in the fourth quarter, with growth accelerating to a 17-month high at the year-end.”

Of course Markit still has some egg on its face from its post EU leave vote efforts singing along to an “it’s the end of the world as we know it” initial impact which turned out to be well if not fake news simply wrong.

The Bank of England

As well as issuing mea culpas the Bank of England is still running an extremely expansionary monetary policy. This afternoon it will purchase another £1 billion of UK Gilts ( government bonds) as part of its extra £60 billion of QE ( Quantitative Easing) as well as some Corporate Bonds. It also cut the official Bank Rate to 0.25% in August and let us not forget its latest bank subsidy the Term Funding Scheme which has provided them with £21.2 billion of cheap liquidity so far. No wonder bank deposit and savings interest-rates are so low.

Putting it another way if we use the old Bank of England rule of thumb the fall in the UK Pound £ has been equivalent to a 3% reduction in Bank Rate. This is why the “Sledgehammer” response in August was a mistake as it was in reality a minor addition to a powerful existing force, and was only likely to increase inflation this and next year.

Today’s figures


These turned out to be strong as you can see.

In November 2016, total production was estimated to have increased by 2.1% compared with October 2016……..The monthly estimate of manufacturing increased by 1.3% in November 2016

This monthly surge was also reflected in the comparison with a year ago.

The month-on-same month a year ago estimate of total production increased by 2.0% in November 2016, with increases in all 4 main sectors; the largest contribution came from manufacturing, 1.2%.

In case you are wondering about the last bit the reason is that manufacturing is the largest sector (~70%) and therefore was responsible for 0.8 of the 2% but other ( smaller) sectors grew more quickly.

Looking at this we learn too things. Firstly the North Sea Oil & Gas maintenance period has faded ( the Buzzard field mostly) with output up 8.2% on the month. Secondly the pharmaceutical industry continues to be very volatile in 2016 being some 11.4% up on the month and as it has done so it has mostly taken the overall manufacturing numbers with it.

Also it is hard not to think of the different German performance which I looked at only on Monday when reading this.

both production and manufacturing output have steadily risen but remain well below the pre-downturn peak.

They seem suddenly shy about providing the exact numbers.


We saw a marginal improvement here if we look at the rolling quarterly data.

Between the 3 months to August 2016 and the 3 months to November 2016, the total trade deficit for goods and services narrowed by £0.4 billion to £11.0 billion, with exports increasing more than imports.

If we look further we see something of a hopeful sign.

The 3-monthly narrowing of the deficit is attributed to an increase of the trade in services surplus,

We need to be cautious on two fronts here as the decrease is small and the services numbers are not that reliable over even a quarter. Also the media seems already to be concentrating on the poor monthly numbers for November forgetting that they can be particularly influenced well be factors like this.

Imports of machinery and transport equipment rose by £1.4 billion, and were the largest contributors to the increase in imports.

The theme is continued by the fact that not so long ago some £20 billion or so was lopped off the estimates for the 2015 deficit. Even in these inflated times that is a fair bit more than just a rounding error! Also we do get contradictions in the data sets as pharmaceuticals surge in the manufacturing numbers but lead to more imports from Europe. They should be a positive influence for December bit let’s see.


Here the news was more downbeat as you can see.

In November 2016, construction output fell by 0.2% compared with October 2016, largely due to a contraction in non-housing repair and maintenance….The underlying pattern as suggested by the 3 month on 3 month movement shows a slight contraction of 0.1%.

These numbers sadly are quite a shambles so take them with plenty of salt or as it is officially put.

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction output and new orders as National Statistics due to concerns about the quality of the Construction Price and Cost Indices used to remove the effects of inflation from the statistics.

A major theme of my work is the official inability and at time unwillingness to measure inflation from the housing sector properly and thus we see something of a confession. More than 2 years later it is still broken even according to the official measure.


So far the UK economy has done rather well post the EU leave vote as the storm predicted in the mainstream media never happened. Indeed if you are a fan of official data something has been going well for quite some time. From the twitter feed of the economics editor of the Financial Times Chris Giles.

UK income inequality at its lowest since height of Thatcherism

Another U-Turn? After all he led the Piketty charge for er inequality did he not? It is a bit like much of the Desert War in the 1940s when the British army had a phase of “order, counter-order, disorder”. My personal view is that there are lots of issues here such as inflation measurement which varies amongst groups as well as other problems and the fact that we need to look at assets as well.

Looking forwards we are likely to see some what might be called “trouble,trouble,trouble” around the summer/autumn as the increase in inflation impacts on us and via real wages looks set to slow the economy. Meanwhile the rhythm section to the UK economy continues to hammer out a trade deficit beat like it has for quite some time.

What are the financial and economic numbers behind the issue of Brexit?

I have regularly been asked for a breakdown of the finance and economics around the concept of the UK leaving the European Union. Perhaps the easiest part is to say that it is the European Union as some have been saying Europe which of course will remain about 22 miles from Dover in Kent whatever happens! As ever I will avoid the politics and stick to the numbers we can get something of a handle on. There are also a lot of areas which are contentious and the reason for that is we simply do not know some of the factors which will be in play. Let me illustrate by this published by the Open University magazine Conversationalist.

It opens by parroting the words of Chancellor Osborne.

George Osborne has said that mortgage rates will rise if there’s an Out vote.

It then argues that the higher risks of Brexit would mean this situation will happen.

This translates into higher borrowing costs for the UK government, and higher costs of capital for UK businesses.

Furthermore an outflow of capital will put pressure on many areas of the economy. Oh and aping “the pound would collapse” rhetoric of Yes Prime Minister we are told this.

The consensus forecasts are that the exchange rate would fall from its current value of around £1 for €1.27 to something more like parity with the euro. The latest forecast from the National Institute of Economic and Social Research think tank is of a 20% fall in the value of sterling

Such forecasts are fascinating. Has anybody published the track record of the NIESR in currency forecasting so we can see if they have the skills of a Druckenmiller or Soros?! I have to confess it is hard not to have a wry smile at such forecasts but on those grounds and the fact that many part of the UK establishment seem to have forgotten they want a lower UK Pound £ to help with the current account and trade deficits. Indeed it was Bank of England policy under Baron King of Lothbury although of course the promised “rebalancing” never happened.

One bit I can agree with.

Britain will face a substantial short-term economic shock if it votes to leave the EU.

The substantial may well be overdoing it and hype but there will be ch-ch-changes and a shock. Let me just deal with the higher mortgage rates point. You see and to be fair the article does mention this the Bank of England could have “an emergency interest rate cut” . If it chose it also could then use the Funding for Lending Scheme to reduce mortgage rates just like it did in the summer of 2012 and perhaps some more QE as well. After all some policymakers are heading in that direction anyway. Indeed those that are will be noting today’s data on economic growth.

Between Quarter 1 2015 and Quarter 1 2016, GDP in volume terms increased by 2.0%, revised down 0.1 percentage points from the previously published estimate……The latest Index of Services estimates show that output decreased by 0.1% between February 2016 and March 2016.

Suddenly mortgage rates are not rising and the situation is different again.

How much do we pay into the European Union?

The situation here is typically complex as the UK ONS explains.

The UK’s contribution to the EU budget changes each year as it is dependent on various factors such as: UK Gross National Income (GNI), the GNI of other EU member states and the value of the UK rebate (which is not a fixed amount, rather it is based on payments and receipts for the previous year).

In terms of numbers we have seen that the net contribution was £11.3 billion in 2013 and £9.9 billion in 2014. The 2015 numbers are still estimates but are as follows.

A 2015 initial figure used by some commentators in the debate is the £8.5 billion estimate of the UK’s 2015 contribution (which is net of the rebate and the direct payments from the EU to the public sector)…….Another estimate can be found in table H of this ONS release which includes some information on the UK’s official transactions with the EU in 2015. The figure published here is £10.6 billion; however, the information used to calculate this figure is approximate

Sadly it will not be finalised until the 29th of July when for referendum purposes it will be over a month too late. The numbers are never complete because some EU expenditure is general and not specified by country and some income such as fines is not split by country and these are around 2% of the totals.

What about trade?

This is a perennial issue for the UK economy with its seemingly endless deficits in this area where trade with the European Union is a major sub-plot. The latest ONS numbers are shown below.

In 2015, 44% of the UK’s goods and services were exported to the EU, while 53% of our imports came to the UK from the EU.

In the same year, UK exports to the EU were valued at £223.3 billion, while UK imports from the EU stood at £291.1 billion.

We rarely give ourselves credit for being a major trading nation although as I have already pointed out in accountancy terms we are regular debtors. The EU is a major trading partner and we provide some £291.1 billion of gross demand for their goods and services which is £67.8 billion in net terms. That is a lot especially to the countries in the EU which have seen particular economic difficulty such as Italy, Portugal and Greece. Indeed even countries currently in better shape such as Ireland and Spain see quite a bit of trade with the UK. And there is this.

15% of imports of goods came from Germany

From their point of view we are this.

The UK is also a relatively small export destination for EU goods, accounting for 6%-7% of total exports of other EU countries over the past eight years

I think “relatively small” is somewhat misleading as they are 27 nations so of course yes but who would want to give up 6-7% of their exports?

We have been shifting away from the EU in recent times although we have become more important to them.

Last year, goods exports to non-EU countries pulled ahead, with a 53% share of the total….The share of EU exports going to the UK has been gradually declining over the past 15 years, but it has risen marginally in the last four years.

There is also the “Rotterdam Effect” which inflates trade with the European Union via double-counting as total trade rather than value added is often used. Efforts have been made to reduce this but it still exists.


As you can see the tangible numbers tell us that the UK makes a substantial contribution to the EU budget and supplies a large amount of net demand for EU economies each year. I have often pointed out we are much better Europeans than we are given credit for. However this is a long way from the end of the story as there are a lot of factors we cannot specify. Would companies leave the UK post Brexit? What are the invisible benefits and costs of being part of the European Union? How will GDP growth change? After all even supporters of the IMF have to have had a wry smile at predicting a fall of 1.5% to 9.5%. You could drive a fleet of London buses through that! And of course that would have been appropriate for Greece but the IMF turned its “blind eye” to that.

There are costs to and risks in leaving as well as remaining in the EU. But in economic terms there are more dangers on the morning of the 24th of June if we leave. For example yes there could be problems for the Pound and the UK Gilt market and there could be a subsequent loss of trade with Europe. We do not know how much though beyond that there will be some of each. The uncertainty has been raised today by the migration figures which have been published as I cannot see how we can have any confidence in them, after all people have freedom of movement within the EU. But here they are.

In 2015, a total of 44% (277,000) of long-term immigrants to the UK were non-EU citizens, 43% (270,000) were EU citizens and 13% (83,000) were British citizens……

This is good for the age balance of the UK population and demographics but also looks to have contributed to the troubles with real wages.

So we know some of the picture but we also know that a fair bit is missing.

Meanwhile remember how we are regularly told how well things are going especially in Japan? Well someone seems to have changed the record. From Reuters.

Japanese Prime Minister Shinzo Abe warned his Group of Seven counterparts of a crisis on the scale of Lehman Brothers, Nikkei reported

Pensions and Tata Steel

Whilst on the subject of number crunching this suggestion for Tata Steel pensioners is wrong on so many levels. From the BBC.

The government is expected to propose basing the scheme’s annual increase on the Consumer Prices Index (CPI) inflation measure, which is usually below the current Retail Prices Index (RPI) measure.

This is a stealth cut to benefits by around 1% per annum which soon mounts up. It is therefore a breach of contract which presumably they hope to get away with because pensioners will not understand it. Even worse it sets a precedent.

So as Dawn Penn reminds us.

No no no









Is the UK just another victim of Industrial Disease?

It was only yesterday that I pointed out that the latest business surveys for the UK were suggesting a slowing of the rate of economic growth. Tucked away on the website of the UK Office for National Statistics there was also this.

UK labour productivity as measured by output per hour fell by 1.2% from the third to the fourth calendar quarter of 2015 and was some 14% below an extrapolation based on its pre-downturn trend.

This should not have been a complete shock as hours worked were up 1.7% in the labour market report whereas GDP had risen by only 0.6% but it was very disappointing. After all we were hoping that productivity would improve as the boom continues.

There are differing ways of measuring productivity and the full set is shown below.

By contrast, output per worker and output per job were both broadly unchanged between the third and fourth quarters. On all 3 measures, labour productivity was about half a per cent higher in Quarter 4 2015 than in the same quarter of 2014.

As you can see they disagree over the latest quarter but if we look at the previous year we then get another disappointing result as productivity growth of 0.5% compares with GDP growth of 1.9% and is even below the GDP growth per head of 1.1%. Indeed if we move to the wages figures we see this in the period to the end of December.

Between October to December 2014 and October to December 2015, in nominal terms, total pay increased by 1.9%

So wage growth exceeded productivity growth too as we wonder what is really going on. If we look back we see that the productivity issue has been one which has bedevilled the credit crunch era.

Output per hour across the service sector has grown in each year since 2009 (albeit only marginally so in 2010 and 2012). By contrast, manufacturing output per hour has fallen in 3 of the 6 years since 2009 and was lower in 2015 than in 2010.

The services sector

There is a real problem here measuring output and hence even worse problems with one of its derivatives productivity. This is highlighted by the debate over the sharing or collaborative economy which the ONS defines thus.

While there is no agreed definition of the sharing economy, it is generally regarded as being activity that is facilitated by digital platforms which enable people or businesses to share property, resources, time, or skills, allowing them to ‘unlock’ previously unused or under-used assets.

The problem for measurement is that money is not always exchanged which is a clear issue for GDP which is based on market prices but nonetheless there does seem to be economic activity there.

The sharing economy is a growing market within the UK; in 2014 it was estimated to be worth £0.5 billion and is forecasted to grow to over £9 billion by 2025.

I guess AirBnB,Uber and ZipCar are the most well-known examples of this and other estimates of the economic impact are even larger.

In 2014, Nesta3 estimated that 25% of the UK adult population are sharing online in some way and Professor Diane Coyle4 estimated that 3% of the UK workforce is already providing a service through the sharing economy.

There are various issues with this but my point is ( and this is one that I made to the Bean Review of UK Economic Statistics) is that we know much less than we should about services activity. There is an obvious flaw in it being some 80% by now of our economic activity and it means that derivatives such as productivity as even less reliable. Of course when the products are intangible as most services are there are problems to begin with.

Let me remind everyone that the UK trade figures are based on quarterly and annual surveys for services. So how do they produce monthly trade and hence output figures? Well exactly…..

Manufacturing problems

This morning’s output data is not exactly in line with the season and is not especially cheerful either.

The largest contribution to the fall (in the year to February) came from manufacturing, which decreased by 1.8%. This was the largest fall since July 2013, when it fell by an equal amount.


This was driven by a monthly fall as shown below.

manufacturing (the largest component of production) having the largest contribution to the decrease, falling by 1.1%.

If we look back for a greater perspective we see this.

In the 3 months to February 2016, production and manufacturing were 10.6% and 6.8% respectively below their figures reached in the pre-downturn GDP peak in Quarter 1 (Jan to Mar) 2008.

Back in October last year I expressed my fears about UK manufacturing as shown in the link below.

What about manufacturing productivity?

There is an issue here and we should be better at measuring it than in the service sector for the obvious reason that something and hopefully lots of products are physically produced. But yesterday’s productivity update was particularly troubling in this area.

Output per hour in manufacturing fell by 2.0% on the previous quarter and was 3.4% lower than a year earlier.

A long way from the “march of the makers” isn’t it? Well it gets worse.

By contrast, manufacturing output per hour has fallen in 3 of the 6 years since 2009 and was lower in 2015 than in 2010.

Or as the ONS summarises it.

The weakness of manufacturing productivity since 2011 has been a defining feature of the UK productivity puzzle, notwithstanding a ‘false dawn’ in 2014.

We seem to have stopped trying to increase productivity and have instead employed more people to increase output. This is good for employment levels but does help explain why there has been so little wage growth and in fact why real wages are still lower now than pre credit crunch.


It has not been a good phase for UK Production either.

Total production output is estimated to have decreased by 0.5% in February 2016 compared with the same month a year ago, the largest fall since August 2013.

We already know from the numbers above that it is some 10.6% below the pre-credit crunch peak. In essence there were two factors driving the most recent fall. I have already covered manufacturing and the other was the consequence of a mild winter for electricity and gas output. You may be surprised to learn that mining and quarrying was up by 4.7% and thereby was a 0.6% upwards influence in the last year.

It is hard to see how productivity here could be rising.

The trade problem

There is an element of same as it ever was here in today’s release.

Between the 3 months to November 2015 and the 3 months to February 2016, the total trade deficit (goods and services) widened by £3.8 billion to £13.7 billion. This is the largest 3 monthly deficit since the 3 months to March 2008, when the deficit was £14.4 billion.

On and on we go month after month,year after year,decade after decade and my friend Frances Coppola has referred to this in the Financial Times. She makes a fair point here.

There is a structural trade deficit of around 2 per cent of GDP, mostly with the EU. This widened slightly in Q4 of 2015, but only back to the 2014 position.

The rest of the current account problem is mostly investment flows and returns. But I do not agree about this bit. It shpuld be true but in practice rarely is.

Since we don’t have freely floating exchange rates, the world has persistent trade imbalances. But that’s also fine, as long as capital can move freely.

Also the latest productivity figures are rather eloquent in response to this.

There is zero evidence that the economy is undergoing a terminal decline in competitiveness.

Oh and if Frances will forgive me articles in the Financial Times telling us everything is okay are one of my warning signals.


There is here an eloquent explanation of why the UK Pound £ has been falling in 2016 and we no doubt need the boost that a move equivalent yo a 1.75% cut in Bank Rate will provide. The catch is that the 2007/08 devaluation and depreciation disappointed in terms of economic impact and the poor productivity figures are unlikely to help in that so we find ourselves singing along to and in Dire Straits.

He wrote me a prescription he said ‘you are depressed
But I’m glad you came to see me to get this off your chest
Come back and see me later – next patient please
Send in another victim of Industrial Disease’

The counterpoint is that the productivity figures are almost certainly wrong as indeed are the trade figures. The catch to this is that both series and the trade figures in particular have a long time series of problems and that is much harder to argue away. Oh and whilst I am on statistical issues things like this keep happening in a world where the official numbers says that there is no inflation. From Joe Sarling.

I feel the need to vent about England rugby tickets. Cheapest tickets available for Eng v Arg on general sale? £82 per person