Where does the events of last night leave the UK economy?

That was an extraordinary night as yet again much of the polling industry was completely wrong and the UK electorate turned up quite a few surprises. In fact it was not only the political world which spun on its axis because financial markets had cruised into this election as if asleep as I pointed out only on Wednesday. Against the US Dollar the UK Pound £ had been above US $1.29 for a while and had if anything nudged a little higher. Oh and Wednesday suddenly seems like a lifetime away doesn’t it as we sing along to Frankie Valli and the Four Seasons.

Oh, I felt a rush like a rolling bolt of thunder
Spinning my head around and taking my body under
Oh, what a night (Do do do do do, do do do do)
Oh, what a night (Do do do do do, do do do do)

The Exchange Rate

It was not quite like the EU leave vote night which if you recall saw a sharp rally to US $1.50 before plunging as actual results began to come in. But the UK Pound did drop a couple of cents to US $1.275 in a flash. Since then it has drifted lower and is at US $1.27 as I type this. There was a similar move against the Euro as a bit above 1.15 found itself replaced with 1.135 as Sterling longs ended the night with singed fingers.

This means that UK monetary conditions have loosened again and should the fall in the Pound be sustained then we have just seen the equivalent of a 0.5% Bank Rate cut.

Government Bonds

In spite of the fact that there has been something of a shift in the UK political axis and hence potential changes in the economy and fiscal deficit this market has met such a reality with something of a yawn. The ten-year Gilt yield is currently 1.03% meaning there is zero political risk priced into the market there and if we look at what might happen over the next 2 years an annual return of 0.08% barely covers a toenail of it in my opinion!

What we are seeing her in my opinion is how central banks have neutralised bond markets as a signal of anything with their enormous purchases. In this instance it is the £435 billion of UK Gilt purchases by the Bank of England which seem to have left it becalmed in the face of not only higher political risk but also higher inflation.

FTSE 100

This too fell in response to the exit poll forecasting a hung parliament and quickly dropped around 70 points. However then things changed and a rally started and as I type this it is up nearly 50 points around 7500. Why the change? Well there has been an inverse relationship between the value of the Pound and the FTSE 100 for a while now due to the fact that many of the larger UK companies have operations overseas.

By contrast the UK FTSE 250 has fallen by 0.9% to 19,576 on the basis that it is much more focused on the domestic economy. Again though the moves are small compared to the political shift as we mull yet another implication of the expanded balance sheets of central banks. As I wrote only a few days ago are equity markets allowed to fall these days?

Today’s Data

Production

The numbers here start with some growth albeit not much of it.

In April 2017, total production was estimated to have increased by 0.2% compared with March 2017, due to rises of 2.9% in energy supply and 0.2% in manufacturing.

So better than last month, but once we go to the annual comparison we see a decline has replaced the rise.

Total production output for April 2017 compared with April 2016 decreased by 0.8%, with energy supply providing the largest downward contribution, decreasing by 7.4%.

Those who are familiar with the poor old weather taking the blame may have a wry smile at the fact that of a 0.75% fall some 0.74% was due to lower electricity and gas production presumably otherwise known as warmer weather.

Manufacturing

As you can see above this was up by 0.2% on a monthly basis but was in fact unchanged on a year ago with its index being at 104.5 in both April 2016 and 17. You could claim some growth if you go to a second decimal place but that is way to far into spurious accuracy territory for me.

As we look into the detail we see something familiar which is that the erratic and volatile path of the pharmaceutical industry has been in play one more time.

Within manufacturing, there were increases in 10 of the 13 sub-sectors, but this was offset by the weakness within the volatile pharmaceutical industry, which provided the largest downward contribution, decreasing by 12.2%, the weakest month-on-same month a year ago growth since February 2013.

It has yo-yo’d around for a while now albeit with a rising trend but we will have to wait until next month to see if that continues. However there is of course the issue of what the Markit PMI ( Purchasing Managers Index) told us.

The UK manufacturing PMI sprung back to a three
year high in April after a brief blip in March…….“The British manufacturing industry is moving at
such a pace that suppliers are struggling to keep up
with demand.

The “growth spurt” with a reading of 57.3 does not fit well with an annual flatlining does it?

Trade

Again there was a monthly improvement to be seen.

The UK’s total trade deficit (goods and services) narrowed by £1.8 billion between March and April 2017 to £2.1 billion…….Imports fell across most commodity groups between March and April 2017, the largest of which were mechanical machinery, oil and cars;

This was needed as March was particularly poor leading to bad quarterly data.

Between the 3 months to January 2017 and the 3 months to April 2017, the total trade deficit (goods and services) widened by £1.7 billion to £8.6 billion;

Thus the underlying theme here is of yet more deficits. Maybe not the “thousands of them” of the film Zulu but definitely in the hundreds.

An upgrade of the past

The first quarter saw a couple of minor upgrades as the data filtered through this morning.

The total trade in goods and services balance in Quarter 1 2017 has been revised up by £1.3 billion, to £9.3 billion.

They mean revised up to -£9.3 billion and also there was this.

there has been an upward revision of 0.9 percentage points to growth in total construction output – from 0.2% to 1.1%. The potential upward impact of this revision to the previously published gross domestic product (GDP) is 0.05 percentage points.

Comment

So many areas need a slice of humble pie this morning that a large one needs to be baked to avoid running out. As ever I will avoid individual politics and simply point out that there will be quite a lot of uncertainty ahead although of course if you recall that seemed to actually help Belgium’s economy when it had some 18 months or so of it.

As to the economy this is the difficult patch that I have feared where higher inflation impacts. As usual there is a lot of noise as for example the April manufacturing figure is very different to the Markit  business survey. Also we have the impact of warmer weather on production ( whatever the weather is it gets blamed for something) and more wild swings in the pharmaceutical sector which must represent a measurement issue. Meanwhile as I have pointed out before I have little faith in the official construction series but this rather stands out.

a fall in private housing new work

That fits with neither what we have been promised nor the construction business surveys.

 

The possible road to another Bank of England Bank Rate cut

This morning has brought some disappointing news about the UK economy. From the Office for National Statistics.

UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.2% between Quarter 4 (Oct to Dec) 2016 and Quarter 1 (Jan to Mar) 2017.

As the official release goes on to tell us this is slightly worse than the preliminary estimate.

UK GDP growth in Quarter 1 2017 has been revised down by 0.1 percentage points from the preliminary estimate published on 28 April 2017; mainly due to broad-based downward revisions within the services sector.

Whilst this was disappointing it was far from a complete surprise as there have been hints that the services sector had struggled in that quarter. Of course it makes up the vast majority of the UK economy these days leaving not much scope to regain the ground elsewhere.

The detail

It turns out that all sectors of the UK economy grew it is just that they did not do so by much.

In Quarter 1 2017, all four sectors show positive growth; agriculture increased by 0.3%, total production increased by 0.1% and construction and total services both increased by 0.2%.

If we look at the services sector we see that in football terms it was in a way a story of two halves.

The growth was focused in the business services and finance, and government and other services industrial groups, but there was a slow-down in growth in consumer-focused industries, such as retail sales and accommodation. Within the services industries, two of the four main sectors decreased in Quarter 1 2017; distribution, hotels and restaurants, and transport, storage and communications.

The area responsible for today’s downwards revision has ironically been a strength for the UK economy in recent quarters.

Services contributed 0.06 percentage points to the downward revision to UK GDP, the biggest contributor. Within services, the largest contributor to the downward revision is business services and finance. However, within this section, at the more detailed level, the revisions are small and broad-based, primarily reflecting late survey returns.

We can really drill down to see the state of play here.

Total services output rose by 0.2% in Quarter 1 (Jan to Mar) 2017, driven by 0.6% growth in business services and finance, and 0.4% growth in government and other services (Figure 3). Meanwhile, distribution, hotels and restaurants, and transport, storage and communication both recorded negative quarterly growth – falling by 0.6% and 0.2% respectively. This is the first negative quarter-on-quarter growth rate in each series since Quarter 4 (Oct to Dec) 2012 and Quarter 3 (July to Sep) 2013.

What about the individual experience?

The aggregate levels above do not allow for changes in the population so for example a growing population would normally lead to higher economic output and GDP, but that higher GDP would not necessarily indicate people being better off. This often gets ignored by politicians and much of the media because it has shown that we are not doing as well as the headline number would suggest.

In Quarter 1 (Jan to Mar) 2017, gross domestic product (GDP) per head was flat compared with Quarter 4 (Oct to Dec) 2016. GDP per head is now 1.7% above the GDP pre-downturn peak in Quarter 1 2008, having surpassed it in Quarter 4 2015.

That compares with us being some 8.7% higher on the headline number and the gap has just widened even further as we were on a road to nowhere on an individual basis at the start to 2017.

GDP per head in volume terms was flat between Quarter 4 2016 and Quarter 1 2017.

If the trend from the migration data also released today continues then the numbers may be pulled back closer together.

Net long-term international migration was estimated to be +248,000 in 2016, down 84,000 from 2015 (statistically significant); immigration was estimated to be 588,000 and emigration 339,000.

The catch is that these numbers are probably even more unreliable than the GDP ones.

Nominal GDP

This is the number that will attract the interest of Mark Carney and the Bank of England.

GDP in current prices increased by 0.7% between Quarter 4 2016 and Quarter 1 2017.

This is because on an economy wide level it is a measure of how we can deal with the debt issues that exist. Mostly we pay these in nominal rather than real terms. Although they avoid putting it in these terms this is why central banks target a positive rate of inflation ( mostly 2% per annum) because it is in effect a subsidy for debtors as their debts get deflated in real terms. This is also why there are regular suggestions that the target rate of inflation should be raised to either 3% or 4% so that debts can be inflated away even more quickly.

So in terms of debt worries they will be pleased to see the effect of inflation on the GDP numbers so that real growth of 0.2% becomes nominal growth of 0.7%. You may note that the period when we had solid economic growth but around 0% inflation would be pretty much indistinguishable in these terms. Of course we as workers are worse off as this from today’s monthly commentary makes clear.

Adjusted for consumer price inflation including owner occupiers’ housing costs (CPIH), average weekly earnings increased by 0.1% including bonuses, but fell by 0.2% excluding bonuses, compared with a year earlier. This is the first decline in real earnings (excluding bonuses) since the 3 months to September 2014.

There are hints that consumers are beginning to feel some of the pinch of higher inflation as well.

The slowdown in Quarter 1 2017 compared with Quarter 4 2016 reflected a decline in output from consumer focused industries, including the retail industry. As a result, private consumption was a smaller contributor to GDP growth than in recent periods, adding 0.2 percentage points.

Trade

This is something of a problem that it a hardy perennial for the UK economy and GDP. It has been at play yet again.

the total trade deficit widened by £5.7 billion to £10.5 billion between Quarter 4 2016 and Quarter 1 2017. Both the monthly and quarterly widening of the trade deficit were mainly due to increased imports of oil, chemicals, mechanical machinery and cars.

More specifically it did this.

The negative contribution to GDP came from net trade, which contributed a negative 1.4 percentage points.

So over the last two quarters it has given us a large boost and now taken it away. If we look back it has taken 1.4% away, given us 1.7% and now taken 1.4% away over the past 3 quarters. An unlikely sequence which reminds us how volatile and unreliable the trade numbers are especially for the most important sector which is the services one.

Comment

Let me open with some optimistic thoughts. Firstly this is now exactly the same rate of economic growth we had at the opening of 2016 and very little below that in 2015. So we may have a systemic problem similar to the one which has affected the United States for a while. Also we are simply not able to measure GDP to 0.1% even when all the data is in as opposed to the 80% or so we have now. If investment is any guide companies seem to be planning hopefully which coincides with the latest business surveys.

For Quarter 1 2017, the largest positive contribution to GDP came from gross capital formation, which contributed 1.2 percentage points.

However the GDP growth number has just been revised lower by 0.1% and the danger for the rest of 2017 is that the higher trajectory for inflation subtracts from economic growth. Let me leave you with a thought that I expressed to TipTV Finance which is that in any sustained slow down the Bank of England would be likely to ease monetary policy again.

http://tiptv.co.uk/uk-election-manifestos-holes-swiss-cheese-not-yes-man-economics/

 

 

 

 

 

The Bank of England is in a mess of its own making

Today is what is called Super Thursday at the Bank of England although if the brief history is any guide it rarely lives up to the moniker! Actually it is a bit like its Governor Mark Carney whose stewardship has been much more hype than substance.  Indeed only recently we saw that demonstrated by the Charlotte Hogg episode where someone was promoted to the Monetary Policy Committee ( MPC) who when quizzed by Parliament was ignorant of many of the details. In fact as the Deputy Governor for Markets she would have been in charge of the £445 billion QE portfolio a subject about which she knew so little the Treasury Select Committee suggested she spoke to the Debt Management Office ( so she could learn something…). Yet according to Bloomberg the official Bank of England view is from an alternative universe.

Her departure “came at a critical time and represented a material loss to the management of the bank,” the BOE’s Court of Directors said,

Indeed her sacking for breaking rules that she had set is apparently “entirely disproportionate”. The rules presumably were for the little people and proles not for the daughters of baroness’s and earls it would seem. In the same way that whistleblowing rules seem not to apply to Jes Staley of Barclays. By the way this is the banking sector which we are so often told is completely reformed.

Women Overboard

The Carney era has come with protestations of more diversity and at first it seemed like that as more women were appointed. But the more hype than substance theme has appeared in 2017 as they seem to be leaving to go elsewhere. The two women who were on the MPC have either left or are going. Ironically the planned replacement Charlotte Hogg lasted not much longer than a May Fly. Then on April 20th the Financial Times reported this.

Jenny Scott, the executive director for communications at the BoE, is leaving to “pursue new opportunities, including those in the third sector”, according to an internal memo sent to Bank staff on Wednesday.

This is so reminiscent of the Yes Prime Minister episode on equal opportunities where the woman concerned says this about the situation.

I find it  comic, but then it is ( the civil service) run by men after all…. most of the work here needs only about 2 O’Levels anyway.

It is also quite a change of tack from the Financial Times from its previous gushing reviews of what it called a “rock star” central banker.

The “Early Wire” Problem

One of Governor Carney’s reforms was that the MPC now votes the day before the announcement. So that at 12 pm today we will be told the results of yesterday’s vote. The danger is of it leaking and makes one wonder about this from the Financial Times.

Two MPC members thought to have voted for increase at latest meeting

That may or may not be right but before the event there are clear fears they may now especially at a time of warnings like this from the Royal Statistical Society.

One of our key requests in this regard is for the government to end the practice of pre-release access to official statistics, whereby ministers and their officials have access to official statistics before they are released to the public.

Forward Guidance

This has of course turned out to be a anything but as it quickly became something of an oxymoron. There were plenty of ch-ch-changes in it as reality proved regularly inconvenient but they were quickly dwarfed by promises of interest-rate rises suddenly metamorphosing into a Bank Rate cut last August. Down was indeed the new up.

Next there was the issue of the post EU leave vote forecasts which were completely wrong which was especially material when the Bank of England cut Bank Rate and added both an extra £60 billion of ordinary QE and £10 billion of Corporate Bond purchases in response to a slow down which never happened! It has responded with a PR campaign to say that its move averted a slow down which would have been a new experience for the UK economy as monetary policy moves have always been considered to fully impact some 18 months or so after the change. Even worse for the spinners at the Bank of England the ECB has offered the view that the lags are now in fact longer than in the past.

The economic outlook

The outlook for inflation has been a problem for the credibility of the Bank of England ever since it cut Bank Rate last August as it did so in spite of expectations of it going above target. It ignored the impact of a weaker Pound £ and ploughed ahead anyway and already we see that consumer inflation is above target and set to go higher. In terms of how much higher both we and the Bank of England have got lucky with the recent dip in oil prices and the stronger trajectory for the Pound £. That was symbolised for me yesterday as I passed a garage in Vauxhall selling a litre of both diesel and petrol for 115.2p. That one is always at the cheaper end of the spectrum but fuel prices at the pump have dipped.

If we move to the prospects for GDP then we are now in the phase which I thought was going to be the difficult bit which was when inflation impacted on real wages. Today’s output and trade data have been in line with that as they were weak. You can excuse the production data as it was affected by mild weather and consequent low electricity output which was 80% of the March fall but manufacturing and trade were both poor.

The overall trade deficit (goods and services) widened both in Quarter 1 2017 and in the month of March, primarily driven by an increase in imports of oil, chemicals, mechanical machinery and motor vehicles. The total trade deficit in Quarter 1 2017 widened by £5.7 billion to £10.5 billion………The monthly fall of 0.6% in manufacturing was broad-based across 8 of the 13 sub-sectors.

Comment

The Bank of England finds itself in a very awkward position for an activist central bank. The Governor has the obvious problem that he told us that the “lower bound” for Bank Rate was 0.5% and then cut it to 0.25%! Should we see a phase of sustained economic weakness then presumably he would vote to cut again ignoring the fact that at such levels the economic gains are in my opinion offset by the losses such as the rise in unsecured credit. Which brings me to my next point if we are going to have a crony culture at the Bank of England why do we need the other 8 MPC members? Any dissent is so rare and has never been policy changing under Mark Carney’s tenure. Indeed Kristin Forbes waited  until after announcing her departure to actually vote for an interest-rate rise confirming the theme of members getting hawkish on the way out. Perhaps the most extreme case of that was the uber dove David Miles who suddenly claimed he was on the edge of voting for  rate rise.

Today is likely to see at least one vote for a Bank Rate rise but does anybody reading this really feel there is any stomach on the MPC for one? The last sequence of votes for a rise faded and ended up in a cut. Also do they still know where the switch is?

 

 

 

UK economic growth is showing some signs of slowing

We advance on quite a bit of UK economic data today and in a link to yesterday’s article there is news to make  Gertjan Vlieghe of the Bank of England even more gloomy. It comes from the housing market.

House prices in the three months to March were 0.1% higher than in the previous quarter; the lowest quarterly rate of change since October 2016. The annual rate of growth fell further; to 3.8% from February’s 5.1%, the lowest rate since May 2013. ( Halifax).

The date given is significant as it is just before the Bank of England launched its initiative to ramp house prices called the Funding for Lending Scheme. Officially this was supposed to boost business lending whereas the reality was that mortgage rates fell quite quickly by over 1% and the total drop was around 2% according to the Bank of England. The UK house market responded in it usual manner to such stimulus. If we stay with the Bank of England it will no doubt be disappointed that its latest banking and house price subsidy scheme called the Term Funding Scheme has not worked in spite of the £55 billion provided.

By contrast I welcome this news which is being reported by more than one source and regular readers will be aware I was expecting it. Even the Halifax itself briefly joins in.

A lengthy period of rapid house price growth has made it increasingly difficult for many to purchase a home as income growth has failed to keep up, which appears to have curbed housing demand.

An extraordinary example of this is given from the London borough of Haringey when houses have “earnt” much faster than their owners salaries/wages.

House prices in the borough increased by an average of £139,803 over the last two years, exceeding average take-home earnings in the area of £48,353 over the same period – a difference of £91,450, equivalent to £3,810 per month.

What could go wrong?

February was not a good month for the UK economy

This morning’s data releases show that we were not at our best this February.

In February 2017, total production decreased by 0.7% compared with January 2017 with falls in all four main sectors, with electricity and gas providing the largest downward contribution, decreasing by 3.4%.

It is with a wry smile that I note that like the poor numbers for Spain also released this morning a familiar scapegoat takes the rap.

The monthly decrease in electricity and gas was largely due to falls in both electricity generation and in the supply and distribution of gas and gaseous fuels; this was largely attributable to the temperature in February 2017 being 1.6 degrees Celsius warmer than average.

Manufacturing output also fell by 0.1% as the Pharmaceutical industry continued its erratic pattern and drove the numbers yet again.

The deficit on trade in goods and services widened to £3.7 billion in February 2017 from a revised deficit of £3.0 billion in January 2017, predominantly due to an increase in imports of erratic goods;

This was added to by this.

The largest revision was to exports, with a downward revision of £1.3 billion in January 2017. This was mainly due to a revision to the exports of erratic commodities (down by £1.0 billion).

Some of the problem is the ongoing issue of how the UK’s gold trade is measured. Frankly the efforts are not going so well. Better news came from this revision as we see that we both exported and imported more.

Since the last UK trade release, there have been upward revisions across both exports and imports of trade in services throughout the 4 quarters of 2016.

Whilst I continue to have little confidence in the numbers the official construction series had a weak month as well.

output fell by 1.7% in February 2017 in comparison to January 2017……infrastructure provided one of the main downward pressures on output in February, decreasing by 7.3%.

Taking some perspective

Underneath this some of the recent trends remain good. For example if we look at manufacturing.

In the 3 months to February 2017, manufacturing increased by 2.1% (unchanged from the 3 months to January 2017), continuing its strongest growth since May 2010……. ( and on a year ago) manufacturing providing the largest contribution, increasing by 3.3%.

This has been driven by a combination of the transport industry, textiles, machinery and computer equipment.

Within this sub-sector, the manufacture of motor vehicles, trailers and semi-trailers rose by 14.4% compared with February 2016.

This drove production higher so that it is 2.8% higher than a year ago although North Sea Oil & Gas pulled it lower.

If we move to the trade picture and look for some perspective we see this.

In the 3 months to February 2017, the deficit on trade in goods and services narrowed to £8.5 billion, reflecting a higher increase in exports than imports, mainly due to increases in exports of machinery and transport equipment, oil and chemicals;

So the by now oh so familiar deficit! But a little lower than before. We should remember that we had a relatively good end to 2016.

The current account deficit improved in Quarter 4 2016, mainly due to an improved primary balance and an improved trade in goods position.

However we now wait for the March data as another weak month would be the first turn down in the UK economy for a while. Should we see that then we will be even further away from regaining the pre credit crunch position.

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 3.0% respectively in the 3 months to February 2017.

Productivity

This of course is one of the problem areas of the post credit crunch world and whilst we have some the problem is far from solved.

Productivity – as measured by output per hour worked – increased by 0.4% in Quarter 4 (Oct to Dec) 2016, following growth of 0.2%, 0.3% and 0.3% in the 3 preceding quarters. As a result, labour productivity was around 1.2% higher in Quarter 4 2016 than in the same period a year earlier and grew consistently over 2016.

Household Debt

I think the chart not only speaks for itself but is rather eloquent.

 

Comment

We have seen the first series of weak numbers from the UK economy since the EU leave vote. Production fell in January and that has now been repeated in February as even manufacturing saw a dip. If we look back the services sector had a disappointing January so the expectations for the NIESR GDP estimate later are likely to cluster around 0.4%. Of course the Bank of England will be watching all of this and perhaps especially the weaker house price data.

As ever the numbers are erratic and we have only part of the picture. On the optimistic front the business confidence figures for all out main sectors showed growth in March. In fact the services data was strong.

March data pointed to a rebound in UK service sector growth, with business activity and incoming new work both rising at the strongest rates so far in 2017. Survey respondents also remained optimistic about the year-ahead business outlook,

Fingers crossed!

 

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?

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.

Trade

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.

Comment

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!