Today sees or if you are reading this later has seen a policy meeting of the Monetary Policy Committee of the Bank of England. There is virtually no speculation about what it will do as it has tied itself into the straitjacket called Forward Guidance which promises that it will keep base rates at 0.5% for a long as possible. Of course it is also true that there is little speculation because everyone is too busy trying to read the runes of the hints of action that have been emanating from the Frankfurt towers of the European Central Bank over the past couple of weeks! If it were also to take the “masterly inaction” route so prized by the apocryphal civil servant Sir Humphrey Appleby then it has misled people.
However whilst you might not believe it from the (in)action of the Bank of England much is going on under the bonnet of the UK economy.
The purchasing managers indices published this week have continued their optimistic view of UK economic growth.
Manufacturing production is currently expanding at a quarterly rate close to 1.5%, according to the PMI…….May data indicated another sharp increase in UK construction output…..Business activity in the UK service sector continued to increase markedly during May, supported by another firm increase in volumes of incoming new work.
The numbers for the construction and services sectors also came with hints of wage pressure. This means that the business surveys are far more positive for wages than the official numbers. So we find yet another area where the situation is masked by a fog of contradictory data. Overall the UK economy remains strong even if we note that these surveys can be over optimistic.
Car registrations surge again
The numbers here have been a clear positive for the UK economy. I have discussed before how I feel that they are likely to have benefited from the PPI (Payment Protection Insurance) misselling payouts and the more recent rise in unsecured credit following the Funding for Lending Scheme. It was only on Monday that I pointed out that the 3 monthly growth rate of unsecured credit was 5.9%. Perhaps another push will come from today’s news?
Some leading banks may have underpaid compensation certain customers are due for mis-sold Payment Protection Insurance, the BBC has learned.
Early estimates are that around another £1 billion will be thrown into the overall pot. I would say that this would further reduce confidence in our banks if I felt that it was not already at rock-bottom.
Even without this the car registration numbers are very good. From the SMMT.
May increase drives UK new car market to 27 consecutive months of growth, breaking record set in the late 1980s.
New car registrations increased 7.7% in May to 194,032 units – the most in May since 2004.
Registrations for 2014-to-date pass the one million mark, rising 11.6% to 1,058,974 units.
Such was the strength of our position we were able to offer a helping hand to the struggling French economy as (h/t @Weayl ) registrations of Renaults rose by 62%. If you are looking for signs of boom time for some, well, sales of Bentleys are up 42% in 2014 so far and Porsches by 20%.
It was only on Tuesday that the Nationwide Building Society had the bare faced cheek to tell us that annual house price inflation running at a rate of 11.1% was a sign of “moderation”. So the number below can be called “great moderation” then?
The average house price increased by 3.9% in May
This was from today’s release from the Halifax and it was tucked away in the report presumably in a failed attempt to tuck it away inconspicuously! Of course monthly numbers are volatile so let us take stock.
House prices in the latest three months (March 2014-May 2014) were 2.0% higher than in the preceding three months (December 2013-February 2014).
So we are still at full steam ahead in the manner of the Titanic and it would appear that forecasts of a fall in the annual rate of house price inflation were very wide of the mark.
Prices in the three months to May were 8.7% higher than in the same three months a year earlier. This was marginally higher than in April (8.5%).
Up is the new down one more time.
We also see that there was only a minor sign that anticpation of the new mortgage rules (MMR) had caused a change in activity and volumes.
Home sales edged down by 1% in April to 103,690, however, transactions are still a third higher than in April 2013.
There are a mulitplicity of measures of UK house prices each with their flaws but in essence the message we are being given is along the lines of “up, up and away”. The cautionary note is that the numbers are being inflated by the house price bubble that is raging in central London. However price rises are spreading across the country and are exceeding wage growth (official version).
We can look at this from the sugar soaped version (full-time male earnings) of the house price to earnings ratio used by the Halifax which nearly needed to start with a 5 today. There must have been relief when the answer came to 4.96! This compares to the 4.53 of May 2013 and is only just shy of the record for this particular series.
One area where there is disagreement between the various house price measures is to whether we have passed the peaks of 2007. Many do record this but the Halfax has us still 7.6% below.
Another way of looking at this is to look at aother signs. I would suggest that the fact that the online house sale agency Zoopla is about to be listed on the London Stock Exchange and is aiming for a valuation of £1 billion is one. A full set would be if one of our banks stepped in to buy it!
Yesterday saw some numbers released which are eye watering for those who remember the way that house price booms in the UK have been accompanied by trade and balance of payments issues too.
The UK current account deficit was at near record highs in Q4 2013, reflecting both a substantial trade deficit and a sharp decline in the value of UK income earned on overseas investments.
If we look into the detail of this we see that our worst fears are being realised.
The UK current account – which has been consistently negative since the late 1990s – deteriorated markedly in the second half of 2013, with deficits of 5.6% and 5.4% of nominal GDP in Q3 2013 and Q4 2013 respectively.
Our income from investments abroad has declined relative to what overseas investors get from the UK and this has nudged the overall balance lower and needs watching to see if it continues.
There is one other regular drain on our balance of payments.
negative net transfer payments accounted for a further 1.0% of GDP on average over the same period.
I am sure that readers can figure out for themselves where the UK government is making payments too…
Whilst the situation of the UK economy appears healthy as high economic growth rates are combined with low inflation there are two sharks in the water. Firstly there is the situation regarding our housing market which has added a new word “moderation” to my financial lexicon for these times. Also there is the issue of the current account of the balance of payments which used to be considered important but now I find myself in much more select company in analysing it! Is this time really different or much more likely was Bob Seger right to sing this.
‘Cause you’re still the same
You’re still the same
Moving game to game
Some things never change
You’re still the same