Blog

Expenditure on cars boosts UK growth

Tue, 30 Mar 2010 14:57:00 +0100

This morning saw the publication of better-than-expected UK GDP data for the final quarter of last year. The UK economy is now estimated to have expanded by 0.4% in 2009 Q4. That compares with a month 1 estimate (published in January) of 0.1% growth, and a month 2 estimate (published last month) of 0.3% growth. Over the past month there have been small upward revisions to the estimated rate of growth of output in most sectors of the economy.

But the picture on activity in 2009 Q4 is still far from clear. Of the three approaches to measuring GDP – output, income and expenditure – the ONS considers that, in the short term, the output measure provides the most accurate guide. Until the National Accounts are ‘fully balanced’, which takes around two years, the ONS makes an alignment adjustment to both the income and expenditure measures so that all three approaches provide a single estimate of growth.

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'No change' announced by soon-to-be ex-Chancellor

Wed, 24 Mar 2010 18:50:00 +0100

One message from today’s Budget clearly designed to sooth financial markets is that the structural element of the UK’s deficit, in other words that part that will persist even when output is in line with potential, is forecast to decline by 5.3 percentage points over the next three years, from 8.4% of GDP in 2009/10 to 3.1% of GDP in 2013/14.

How is this to be achieved? What is striking, to us at least, is that at the time of the 2009 Pre-Budget Report, the structural deficit was forecast to narrow by 5.4 percentage points over the same three years. At the time of the 2009 Budget, it was forecast to narrow by 5.3 percentage points. So, on that basis, it would seem that today’s Budget contained relatively little in terms of new fiscal measures. If the structural deficit is to narrow by 5.3 percentage points over the next three years, we need around £75 billion of savings in today’s money. Today, the Chancellor fleshed out around £19 billion of tax rises, and around £20 billion of spending cuts. On that basis, we have detail on just over one half of the necessary measures. Just over half of the spending cuts are to come from ‘efficiency savings’, which is never encouraging, while just over £3 billion is to come from limiting increases in basic pay in the public sector to just 1% in each of the next two years – regular pay growth in the public sector is currently running at 4.1%, so that would be some achievement.

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Falling Business Price Inflation means CPI will follow

Tue, 23 Mar 2010 15:25:00 +0100

According to the latest reading on the London Chamber BPI, UK business cost inflation was -0.5 per cent in the year to February. The figure for the London region was also -0.5 per cent.

Falling business costs are a forward-looking indicator of weak consumer price inflation to come. For a period, firms will benefit from falling costs by rebuilding their profit margins. But that cannot last forever – eventually, competition will force them to bring the growth in their prices into line with the growth in their costs. We see that story playing out over the coming year or two, with low costs bringing down consumer price inflation gradually to the target of 2 per cent, and below.

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The end of empire

Mon, 22 Mar 2010 13:17:00 +0100

The lost US decade

The peak of the stock market ten years ago ushered in one of the worst decades on record for the G4 economies and their stock markets. Most strikingly, the US economy fared particularly badly. In absolute terms, the past decade constitutes the worst since the 1930s. Employment failed to grow for the first time during the twentieth century. This is in stark contrast to the 7 million jobs generated by its European counterparts, and the 20 million jobs the US itself produced in each of the two preceding decades. Only Japan fared worse among the G4.

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Record rise in inactivity points to UK labour market weakness

Wed, 17 Mar 2010 15:15:00 +0100

At first glance, the latest set of UK labour market data, released this morning, were stronger than expected. Claimant count unemployment fell by 32k in February when a 24k rise was expected. The ILO measure, regarded as more economically meaningful, fell by 33k during the three-months to February. But unemployment is only one part of the picture. In the three-months to February, employment also fell, by 54k. The fall in the number of employees, at 86k, was particularly large. And inactivity, which includes those who are not looking for work, or are unable to start work, rose by 185k over the same period, driven by a 98k rise in the number of students. The rise in inactivity was the strongest since at least the early 1970s. In our view, the UK labour market remains particularly fragile. As our chart shows, employment is on a downward trend again. The fall in ILO unemployment is of little comfort when inactivity is rising so sharply.

Similar points were also made this morning by the BBC's economics editor Stephanie Flanders in her blog post, Not lagging, but not leading either.

UK exports/output plunge

Wed, 10 Mar 2010 18:30:00 +0100

While the PMI manufacturing survey has been at multi-year highs since the start of the year - apparently boosted by surging export orders, which are at 15-year highs - the official data paint a rather different picture. Both output and export volumes plunged in January. January’s 0.9% m/m fall in manufacturing reversed the gain of the previous month and, in turn, dragged industrial production down by 0.4% m/m. Meanwhile exports fell by 6% on the month – the largest drop in several years and since sterling began to depreciate.

UK analysts and the media celebrated the 'surge in UK exports' based on the PMI only a week ago; and will no doubt write off this latest setback as being 'weather related' - alongside the retail sales number (even though Internet sales also fell on the month); house prices; mortgage approvals; and Leeds United's alarming dip in form. Some even claimed that the cold weather could have impacted exports more than imports, even though one might imagine the respective journeys involved are quite similar, save for being in opposite directions.

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Getting structural about the deficit

Wed, 10 Mar 2010 13:22:00 +0100

Chris Giles, Economic Editor of the Financial Times, accuses us (and others) of "succumb[ing] to the spurious precision of the structural deficit disease" in his blog. He was referring to the article we wrote and which was published by The Daily Telegraph earlier in the week (see here).

Chris's article is as ever thought-provoking and he raises a critically important issue. As he says, the main thrust of our argument about the parlous state of the UK's public finances revolves around the fact that the so-called structural deficit is not only the biggest on record but also expected by the OECD to be the biggest among the major economies in2011. But, as Chris points out, neither we, the OECD or indeed HM Treasury actually know how big the UK's structural deficit is. So, maybe we're all worrying about nothing?

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Britain's record deficit: a real diagnosis and solution

Wed, 10 Mar 2010 12:54:00 +0100

The UK’s public finances are in a dreadful state. That much is not in dispute. Many other countries are in trouble, but few are in quite the mess the UK is in. Unfortunately, the debate about what should be done and when has generated a lot of heat, but so far shed little light on the matter at hand.

One hundred of the country’s finest economists have put pen to paper to offer three alternative views, which for so many economists is not a bad return, but is still not very helpful. For all the sound and fury, they disagree on very little of substance. In the final analysis we are talking about a few tenths of a percentage point of GDP here, and perhaps the odd quarter there, in terms of timing. Much the same could be said of the main political parties

So, what should be done? To read the full article – published by The Daily Telegraph - please click here:

http://www.telegraph.co.uk/finance/economics/7353209/Britains-record-deficit-a-real-diagnosis-and-solution.html

Auction prices close to 30%

Wed, 10 Mar 2010 12:53:00 +0100

There was a substantial increase in the discount available on properties sold at auction January. January is a quiet month for property auctions, and so the latest reading might be treated with some caution, nevertheless the near 30% discount is a long way above its historic average, and not far off the lows of December 2008. It suggests a significant relapse in prices achieved at auction since late 2009, and adds to survey evidence that the balance of power between buyers and sellers in the conventional market has begun to shift.

For read more about the latest update of our Auction Price Index, go to:

http://www.thisismoney.co.uk/mortgages-and-homes/house-prices/article.html?in_article_id=499490&in_page_id=57

Drop 'til you shop

Wed, 10 Mar 2010 12:51:00 +0100

You can berate Americans for many things.

For inventing sports that no one else wants to play, and then for claiming that they are the world champions of these sports.

For inventing cars that have all the handling and performance capabilities of a leaky rowing boat. For the widespread and indiscriminate abuse of the English language, for example, their use of the word "invite" when they really mean "invitation", to say nothing of their spelling.

But until very recently one could never accuse Americans of being thrifty. We all know that Americans love to shop. They just love to spend money – both their own and other people's. They love it so much that one could argue that shopping, not baseball, is their real national sport, and that the malls that sprawl across that great county are their cathedrals.

To read the full article – published by Financial Adviser – please click here.

A new kind of economic and financial consultancy

Thu, 11 Dec 2008 15:02:00 +0100

Fathom is a new kind of economic and financial market consultancy. Independent, demand-driven and rigorous, Fathom brings macroeconomic analysis together with financial market research.