Posts Tagged ‘Economic growth’


This morning the latest Purchasing Managers’ Index (PMI) on UK construction was out, and boy was it good. It was especially good for residential construction.

The headline PMI for UK construction hit 59.1 – that is seasonally adjusted by the way. To put this in context, any score over 50 is mean to denote growth. It was the highest reading since September 2007.

Residential construction remained the strongest performing sub-sector, with output rising at the fastest pace since June 2010.

It seems the government’s Help to Buy scheme and public sector infrastructure spending have largely been behind the improvement.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: “A new dawn is breaking in construction…. Builders have seen a step change in recent months and are now starting to show their true potential to the UK economy. Nowhere is this more true than in new business, where growth is at its second-strongest in almost six years, leading to more jobs and increasing confidence.

“Robust expansion can be seen in all three sub-sectors; house building is rising at a rate not seen since mid-2010, commercial growth is also strong, but it is the strongest growth in six years recorded in civil engineering that is a real cause for optimism and a sure sign the sector has overcome its previous difficulties.

“This new direction brings new challenges, not least the prospect of additional work and insufficient capacity to meet demand. How the sector navigates these tensions and manages the supply chain could come to define its performance over the coming months.”

© Investment & Business News 2013


The ONS revised again. It always does, but it can be hard to keep up. You may recall, back at the end of 2011 the UK fell back into recession, suffering what we called a double dip — except it didn’t. Subsequent revisions of the ONS data on GDP revised the contraction away. You may also recall that the UK grew by 0.6 per cent in Q2 of this year, which was good, but working against this was that much of the growth came on the back of rising consumption, or falling savings. Given the high level of UK household debt, some might say that this development was a tad worrying — except that they didn’t. The data has been revised, and this time the story revealed is much more encouraging.

The first revision was to the headline figure. The ONS is now saying the UK economy expanded by 0.7 per cent in Q2. To put that in context, the US expanded by 0.4 per cent and the Eurozone by 0.3 per cent in the quarter. On an annual basis the economy expanded by 1.5 per cent.

Drill down, however, and the data looks more encouraging still.

It turns out – or at least this is what the latest data says – that investment jumped by 1.7 per cent quarter on quarter and net trade rose by 0.3 per cent. Okay, the poor old indebted consumer spent more too, largely by adding to his and her debt. Consumer spending was up 0.4 per cent – boosting retail sales in the process, but then again, it is all the more encouraging that at a time of growing consumer spending, net trade provided a positive contribution to growth.

As another story today shows that there has been a gradual rise in the UK’s export sector at a time when global trade is seeing only modest growth and this provides reason to hope that this time the UK recovery is for real. See: The UK’s export-led recovery

Drill down further still in the UK GDP data, and it emerges that both manufacturing and construction grew faster than services – or to remind you of the caveat, so says the latest data, which may get changed again.

Vicky Redwood, chief UK economist at Capital Economics, said: “Looking ahead, the economy still faces some serious constraints (including the fiscal squeeze and weak bank lending), so it may struggle to keep growing at quite such robust rates.”

It is not hard to be cynical about the data. Sure, manufacturing and construction are growing, but from very low levels. Considering where we are in the economic cycle, a growth rate of 0.7 per cent is pretty modest, and there are reasons to think growth will slow later in the year.

The point is, however, that the UK does appear to be recovering. The recovery is slower than we might like and there are reasons for caution, but compared to what we have seen over the last half a decade, the growth rate is pretty good. Relative to what we are used to, the UK is booming. In China, growth is around three times faster, but relative to what China is used to, it feels like a crisis. This time, unlike in 2010, the recovery does fell a little more real.

Let us finish on a qualified positive note. Other recent data from the ONS reveals that UK total net worth at the end of 2012 was estimated at £7.3 trillion; this was equivalent to approximately £114,000 per head of population or £275,000 per household. The estimated increase in UK net worth between 2011 and 2012 was £74 billion. Okay, the increase in wealth was largely down to rising house prices and equity values and they can fall as well as rise. The jump in asset values goes some way to justify rising consumer spending.

One question remains, however. How sustainable are rises in consumption at a time of high household debt on the back of rising house prices, at a time when they already seem too high?

© Investment & Business News 2013


The hard data was not that good, but there are signs coming from elsewhere that the UK labour market is recovering. It may not be time to open the champagne, but is it time to at least put it in the fridge?

The number of people in employment rose 301,000 in the three months to June, compared to the same period a year ago. Look at unemployment, however, and the improvement was not so marked, with this number falling by 49,000. Compare the last three month period with the previous three months and unemployment was down by just 4,000.

On the face of it, this does not seem that special. Sure the labour market is improving, but oh so slowly. UK unemployment is 7.8 per cent, surprisingly low given where the economy is, but even so, many had hoped for better.

But then again, some are beginning to make bullish noises.

Take the latest Purchasing Managers’ Indices, which suggested that during July firms took on staff at their fastest rate since 2007. According to Markit, which compiles the Purchasing Managers Indices, the improvement was led by services, although construction employment grew at the sharpest rate since 2008 and meanwhile, manufacturers boosted workforce numbers at the greatest extent for two years.

Or take the CIPD. It has just released its latest labour market survey. The report shows that the net employment balance – which measures the difference between the proportion of employers who expect to increase staffing levels and the proportion who intend to reduce staffing levels – stands at +14. This is an increase from +9 in the previous quarter and the highest figure since the recession in 2008. So far this is all pretty promising. The Bank of England says that it will not increase interest rates until unemployment falls to 7.0 per cent. If the inference from the surveys is right, it seems quite plausible that this level may be reached within a year or so, and ahead, by the way, of what the Bank of England is predicting.

Then there are wages. For over two years now, the percentage increase in average wages has been less than the percentage rate of inflation, meaning that real wages have been falling.

The latest period was no exception, but then again average weekly earnings – including bonus payments – rose by 2.1 per cent, comparing April to June 2013 with the same period a year earlier. This is the first time the growth rate has exceeded 2 per cent since late 2011. Inflation in June was 2.9 per cent, so the gap between wage increases and inflation is still quite large. There is a growing view that UK inflation is set to fall too, and many are predicting an inflation rate of 2 per cent within a few months. So if wages can carry on rising at the rate at which they rose between April and June, and inflation falls as expected, within a few months – say the beginning of 2014 – real wages may be rising.

There is a problem, however. April was a good month for bonuses. If we look at regular pay (that’s without bonuses) in the three months to June, this rose by just 1.1 per cent. Furthermore – and returning to the CIPD survey – employers do not expect wage growth to accelerate significantly. Among those employers who took part in the survey the average anticipated settlement for basic pay (excluding bonuses) in the 12 months to February 2014 was 1.7 per cent, unchanged from the previous quarter.

The UK needs wage increases to exceed inflation in order for consumer demand to rise, which will push up GDP without the need to increase debt. At the moment, consumers are buying more, but they are doing this by reducing saving, and borrowing more, which is surely not sustainable.

But then again, wages can only really increase if productivity improves. And in this respect at least there has been some good news. Output per worker had been steadily falling since early 2011, except that is in Q1, when it improved. (It improved in Q3 last year, too.) Year on year output per worker is still falling, but the extent of the fall has reduced very significantly. Data for Q2 will be out in about six weeks, and that will tell us whether the April to June period saw further improvement in productivity. If it did, we may be able to start talking more confidently about rising wages, leading to sustainable improvements in demand.


© Investment & Business News 2013

Every quarter, we hear the excuses. Inflation was higher than predicted in than previous inflation report because… Growth in GDP was less than expected because…

If there is one thing we have come to expect from inflation reports, it is that the forecasts will be changed – and for the worse.

But, and lean in close – this will be whispered so as not to jinx it – the next inflation report is due out this week, and talk is that the Bank of England may revise its estimates of growth – upwards. It may revise its estimates of inflation – downwards.

On the growth front, the last week or so has seen a fair dollop of good news. The latest Purchasing Managers’ Indices were up, with the sub index tracking new export orders in the manufacturing sector up to its highest level for a couple of years.

The latest news on industrial production, especially manufacturing, was encouraging, and now the National Institute of Economic and Social Research (NIESR) has estimated that in the three months to April the UK economy expanded by 0.8 per cent.

Okay, 0.8 per cent expansion is not exactly a scintillating pace, but compared to what we have become used to, it really is rather good.

As for inflation, according to the British Retail Consortium, shop price inflation was just 0.4 per cent in April, the lowest level since 2009.

It is just that NIESR said underlying growth was not so good, and don’t forget that UK households will only feel better off once wages rise faster than inflation. In the three months to the end of February, wages rose by just 0.8 per cent compared to a year ago. Inflation must fall much, much further, or wages rise much faster before households feel better off.

Incidentally, the latest Bank of England inflation report will have an interim feel about it. The new governor, Mark Carney, will have taken over by the time of the next one. And the August report will look at ideas for loosening the bank’s targets for inflation too.

© Investment & Business News 2013

Not just one report, but three. And not just one month, but three. For the third month running, the Halifax housing survey, Nationwide and Hometrack all had house prices rising. In April Halifax recorded a 1.3 per cent rise over the previous three months – it was the fifth time in a row it had recorded a rise.

The Nationwide had prices rising by 1.1 per cent.

As for year on year, the Nationwide had prices rising 0.9 per cent per cent; the Halifax by 2.0 per cent.

The trend has been clear of late, house prices are enjoying something of a good spell. The reason is just as clear, it’s funding for lending. The “help to buy” scheme will surely help.

You may recall that during the bubble years and right up to 2008, Halifax reports on the UK housing market were just a tad on the upbeat side. But then Halifax but was a part of HBOS back then, and HBOS was a little on the optimistic side.

It is not like that now. Even when the data says prices rose, Halifax reports strike a distinctly downbeat note.

Take this month for example. Martin Ellis, housing economist for Lloyds TSB – the company behind the Halifax surveys these days – said: “Market activity, however, remains subdued by historical standards with the number of mortgage approvals for house purchases – a leading indicator of completed house sales – easing slightly in the first quarter of 2013, according to the latest industry-wide figures…Weak income growth and continuing below-trend economic growth are likely to remain significant constraints on housing demand during the remainder of 2013.”

Meanwhile data from the Council of Mortgage Lenders revealed that Q1 of this year saw a fall in buy-to-let lending. In total £4.2 billion across 33,500 mortgages was advanced to buy-to-let landlords in the first quarter of 2013. This compares with £4.6 billion the previous quarter. Then again, in Q1 2011 buy-to-let lending was £3.7 billion.

Matthew Pointon, Property Economist at Capital Economics, said: “After a shaky start to 2013, lending to BTL landlords is likely to expand over the remainder of the year. But the increase will be modest.”

© Investment & Business News 2013


When they talk about the Eurozone’s more problematic areas, Ireland is held up as a beacon of hope. For example, take these words uttered by Capital Economics: “Ireland remains a head and shoulders above the other peripheral euro-zone economies.”

But data out yesterday provided a sharp and quite nasty shock to such complacency.

In recent months while all around the Purchasing Managers’ Indices (PMIs) relating to manufacturing across the Eurozone have been dark, the Irish equivalent has been bright. Ireland showed that austerity can work. A country can suffer the ignominy of a bail-out, and despite staying the euro, enjoy impressive recovery.

Well maybe that is right, but take a hard look at the data. Unemployment is 14.7 per cent, the budget deficit was estimated to have been around 9 per cent of GDP last year, and government debt is predicted to be around 121 per cent of GDP at the end of this year.

Look at the story of growth. It was minus 5.5 per cent in 2009, minus 0.8 in 2010, plus 1.4 in 2011, and plus 0.7 in 2012. So last year and the year before, Ireland expanded – in fact it enjoyed one of the highest growth rates in Europe, which is what gave hope to its supporters. But many forecasters are predicting contraction this year and next.

Ireland’s growth is coming from exports. In 2009 it suffered a current account deficit worth 2.3 per cent of GDP. In 2012 it had a surplus worth 2 per cent of GDP, and is expected to have a surplus worth 3 per cent of GDP this year.

Ireland’s woes turned really nasty in 2010. That was the year when it ran a fiscal deficit of 30.9 per cent of GDP, and government debt rose from an average of 33 per cent of GDP between 1998 and 2008 to 65 per cent in 2009, to 106 per cent in 2011.

It just to goes to show, keeping government debt under control is not the secret to having a successful economy, and we have seen this over and over again in recent years. When the private sector hits a crisis, government debt can then soar.

But now we come to the really worrying part of Ireland’s story. The latest PMI for manufacturing came in at just 48.6. Okay so what does that mean? Any score under 50 is meant to suggest contraction. More to the point, Ireland’s latest PMI was the lowest reading in 14 months.

This does not mean Irish growth recovery is over, but it has most certainly hit a nasty hurdle.

©2013 Investment and Business News.

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