Today brings us to the latest UK data on both the money supply and the manufacturing sector. Both of these are seeing developments. If we start with something which has boost the UK money supply by some £435 billion there is of course the QE bond purchases of the Bank of England. Having given my thoughts on Friday here is David Smith of the Sunday Times who seems to have bought the Bank of England rhetoric hook,line and sinker. Firstly let me correct a misconception.
At first, as in America, the process of running off QE assets is being achieved by not reinvesting the proceeds of maturing bonds.
That implies that the UK is no longer reinvesting its maturing Gilt holdings and would be a policy I support having originally suggested it some five years ago. This would be news to the Monetary Policy Committee.
The Committee also voted unanimously to maintain the stock of UK government bond purchases,
Moving back to how things might play out the musical theme is “Don’t Worry Be Happy” by Bobby McFerrin.
We are still, of course, some way away from the unwinding of the Bank’s £435bn of QE. It will not happen until interest rates reach 1.5%, and they are currently only half that level. It remains possible that, in the event of a rocky, no-deal Brexit, the Bank will think it is obliged to launch a further tranche of QE. But it will eventually be reversed. And there is no reason why we should be unduly worried about that.
So suddenly we are no longer reversing it, and we will not do so until Bank Rate reaches 1.5%, In case you are wondering if there is something especially significant about 1.5% there is not apart from the fact that the associated higher Gilt yields will mean a lower value for the holdings. Oh and we might get more! But don’t worry “it will eventually be reversed” and using the strategy suggested which of course has not started it would be in 2065.
As to what good it has done? We seem to just have to accept the line it has saved us.
any marginal increase in wealth inequality looks like a small price to pay for avoiding more serious economic damage and deflation.
This month’s data was a little bit of a curate’s egg but let us start with something that has become very familiar. From the Bank of England.
The annual growth rate of consumer credit slowed further in August, to 8.1%, reflecting weaker monthly lending flows. The annual growth rate was the lowest since August 2015, and well below the peak of 10.9% in November 2016. Within this, and consistent with lower monthly net flows over the past few months, other loans and advances growth fell to 7.7%, the lowest since December 2014. Credit card growth has been broadly stable for the past 18 months at close to 9%.
The official view can be seen quite clearly here as if we take the £838 million of July and the £1118 million of August that is lower than the circa £1500 million previously. The catch is the annual growth rate of 8.1% as can anybody thing of anything else in the UK economy growing at that sort of rate? After all it compares with real wage growth which is somewhere around zero and an annual rate of economic growth of between 1% and 2%. Although I am reminded that Sir Dave Ramsden of the Bank of England called an annual growth rate of 8.3% “weak” earlier this year.
Also if you look at the date of the peak you see that the “Sledgehammer QE” and Bank Rate cut of August 2016 did seem to achieve something which was a peak in unsecured borrowing. Oddly we do not see the Bank of England trying to bathe itself in this particular piece of glory…..
This has been fairly stable for a while now. The Funding for Lending Scheme got net monthly lending positive in 2013 and since then both the banks and our central bank have been happy. At the moment we mostly see net lending of around £3 billion per month.
Lending to business
There are two clear trends here.Let me open by pointing out the impact of the Funding for Lending Scheme on the metric it was loudly proclaimed to influence.
Annual growth in lending to small and medium-sized businesses remained close to zero for the eighth consecutive month.
This has been the pattern since it began which is why the central banking nuclear deterrent the word “counterfactual” has been deployed. It tells us that however bad things are they would have been worse otherwise so things are in fact a success. If we look at the breakdown we see that of the £166 billion or so, some £50 billion is for real-estate as opposed to the £10 billion for manufacturing, which tells us something about the way the UK economic wind blows.
Another is that businesses are shifting away from banks which is a trend which would make my late father very happy if he was still with us.
Businesses can raise money by borrowing from banks or from financial markets (in the form of bonds, equity and commercial paper). The total amount outstanding of businesses’ borrowing from these sources increased by £3.2 billion in August. Within this, net finance raised from banks remained positive, but weak, at £1.0 billion.
Over the past six months the average raised from banks has been £1 billion but £1.5 billion has been raised from other sources of credit.
These are the curate’s egg part this month. This is because the actual monthly data was better.
The total amount of money held by UK households, businesses and non-intermediary other financial corporations (NIOFCs) (Broad money or M4ex) rose by £6.9 billion in August. This was above the £0.7 billion in July and the £2.6 billion average of the previous six months.
However the annual rate of M4ex fell to 2.8% which is poor and a further slowing. But if we look for perspective the problem months were July as you can see above and even more so June where it shrank by £2.6 billion. So we know the overall trend has been weak but we are a bit unsure about what is about to take place.
There was some rather welcome news from this sector today as Markit published its PMI business survey.
Domestic market demand strengthened, while increased orders from North America and Europe helped new export
business stage a modest recovery from August’s
contraction. Business confidence also rose to a three-month
The reading of 53.8 following an upwardly revised 53 for August shows some welcome growth and is rather different to the media perspective and coverage. Let us hope it bodes well.
The UK money supply data have been weak for a while now and on Friday we noted again that so has the economy.
Compared with the same quarter a year ago, the UK economy has grown by 1.2% – revised down slightly from the previously published 1.3%.
That makes the Bank Rate rise in August look even odder to me. Of course there is an exception which is unsecured credit which is charging along albeit not quite a fast as before. The total has now reached £214.2 billion.
We are left hoping that the better manufacturing surveys will add to the GDP data for July and give us if not the economic equivalent of the long hot summer at least some solid growth. After all clouds are gathering around at least some of Europe (Italy) if not its golfers.
Meanwhile our official statistician rather than working on known problems seem determined to produce numbers which are meaningless in my opinion.
In 2017, the UK’s real full human capital stock was £20.4 trillion, equivalent to just over 10 times the size of UK gross domestic product (GDP).
Perhaps there is a clue telling us where the author lives.
the average real human capital stock of those living in West Midlands fell the most, by 5% in 2017 to £568,168, the biggest drop in six years, reflecting negative real earnings growth. By contrast, the average real human capital stock of those living in East Midlands with a degree or higher qualification rose by 9% in 2017 to £564,790.