The last 48 hours has seen evidence of some panic in the UK economics establishment. It was only on Wednesday that I discussed Lord Adair Turner’s views on money printing,which are in essence yes please. Since then Martin Wolf of the Financial Times and Anatole Kaletsky of Reuters have rushed to support such a stance. For those of a nervous disposition do not be worried about their apparent “respected” status as they are in fact the equivalent of a lasagne made by Findus or a Burger King burger. Indeed it is very kind of them to confirm the critique of their philosophy I wrote in the early days of this blog which is that their favourite policies will fail but rather than analyse this they will demand “More,More,More”. It would appear that they are also fans of Luther Vandross.
Never too much, never too much, never too much
Of course should even more economists join them we know the track record of large groups of economists when they recommend something!
Anyway the proposal did not have the best of days as the incoming Bank of England Governor Mark Carney clearly stated he was against money printing or “helicopter drops” and he was unequivocal “under any circumstances”.
The UK economy
If we consider the position we see that it has been provoked by the current state of the UK economy which in spite of the measures the trio above have supported-do not forget that their previous wheeze was that failure called Quantitative Easing- has in essence flat-lined for the last three years or so. Indeed we got an update from several sources yesterday as to where we stand right now from which we can gain some insight.
The National Institute for Economic and Social Research or NIESR told us this.
Our monthly estimates of GDP suggest that output grew by 0.0 per cent in the three months ending in January 2013 after a decline of 0.3 per cent in the three months ending in December 2012. We expect the UK economy to expand this year, but at a relatively modest pace.
So as you can see we are doing better than we were but that only gets us to flat-lining! Sadly the “expand this year” may come a cropper due to the fact that inflation is invariably inconvenient for their model. Or to put into another way it is always about to fall in their world,indeed sometimes as I saw its head Jonathan Portes tell us on the BBC last summer “rapidly and heavily”,which of course is now in my financial lexicon.
However there is food for though here particularly if in the light of the above they are likely to be over optimistic about output.
We do not expect output to pass its peak in early 2008 until 2015.
Here we saw the Office for National Statistics drum a very similar beat.
Production on a seasonally adjusted basis rose by 1.1% between November 2012 and December 2012, mining & quarrying rose by 1.2% and manufacturing rose by 1.6%
On its own this sets a cheery note in a difficult environment but as soon as we look for some perspective we see that the cheer mostly evaporates.
Production on a seasonally adjusted basis fell by 1.7% in December 2012 compared with December 2011
Manufacturing on a seasonally adjusted basis fell by 1.5% in December 2012 compared with December 2011
Indeed on a measure where 2009=100 UK industrial production ended 2012 at 98.5. Speaking of fans of monetary expansion how is Mervyn King’s “rebalancing” going there?
A Rewrite for history
Last night the Chairman of the Treasury Select Committee told us this on the Jeff Randall Show on Sky according to their twitter feed.
Andrew Tyrie, chairman of the Treasury Select Committee on Sir Mervyn King: History will judge him well
Only if he writes it himself….
What about construction?
This has had a dreadful run which reminds me one more time that we should be grateful we did not join the Euro as Lord Adair Turner advised. After all imagine what interest-rates set for Germany would have done to our housing market! Even on our own we have managed a boom and bust.
The estimated total volume of construction output in the fourth quarter of 2012 fell by 9.3% compared with the same quarter of 2011
If you live in London as I do where a forest of skyscrapers has sprung up on the skyline this is hard to digest, however output elsewhere must be really grim. But we see that the more recent picture in line with the other sectors above has improved.
The estimated total volume of construction output in the fourth quarter of 2012 grew by 0.9% compared with the third quarter of 2012
These numbers were better than those estimated in the UK Gross Domestic Product numbers for the last quarter of 2012 and it would have been 0.04% higher with them.
The service sector
We had received some optimistic news earlier this week from the Markit Purchasing Manager’s Index.
A return to growth of the UK service sector was signalled at the start of 2013 as volumes of incoming new business increased and companies boosted capacity by adding to their payrolls.
A reading of 51.5 only indicates modest expansion but we should take every scrap we can and please re-read the last line about employment. For newer readers employment trends have proved to be something of a hint to the economic future and indeed have been one of the better ones. Interestingly we got another hint today from the KPMG jobs market report.
Demand for staff continued to increase at the start of 2013. The rate of growth in permanent vacancies quickened to a 21-month high, but temp vacancies rose at a slightly slower pace than in December.
So as you can see there are flickerings of light in the UK economy at the opening of 2013. Should rising employment demand continue and the service sector continue to edge forwards then we will avoid the triple dip that headline writers already have their pens and keyboards ready for! Such a move would be consistent with the behaviour of the UK money supply in the middle/latter part of 2012.
However there is a possible “rub” as Shakespeare put it and that is our inflation prospects. The monetary boost could slip away into inflation in what is a very familiar development for students of UK economic history. I am reminded of my critique of the NIESR above where under forecasting of inflation has been a flaw of theirs. If we look at something as basic as the oil price we see that there are clear dangers. On its own it has been rising in 2013 as it is up nearly 6% at US $117.65 for a barrel of Brent Crude as I type this. The weakness of the pound has added to this and means that at £74.82 we have seen a 9% rise in 2013. If we add in the UK tendency to institutionalised inflation of which we saw another example this week as water bills rose at an average of 3.5% there are very real dangers. Also the hapless head of the regulator Ofwat described the increases as being driven by inflation which is strange for something above it!
If we return to the views of the trio above in essence my critique if this. The financial and monetary wheezes which they keep wanting to press on us keep raising inflation with very little actual growth being provided. As they press for more let me remind them that this inflation via its impact on real wages (which have fallen by 7% over the past five years) has been a contractionary influence on the UK economy. Accordingly their new plans are ikely to be as unsuccessful as their previous ones.
So here is my alternative. As we have some embers of growth how about us trying to keep inflation contained so that we can hopefully have some real growth rather than the fictional variety?