Economics news – growth revised up in second quarter ...
The second estimate of GDP for the second quarter was released on Friday. Growth was revised up by 0.1% providing a quarter on quarter gain of 0.7% and a 1.5% gain on the same quarter last year. Good news? ... of course. Consensus forecasts for the rest of the year are now around the 1.1% level with 1.8% in prospect for 2014. The revisions in the quarter attributed to smaller falls in output in manufacturing, construction and agriculture. Service sector growth overall was unchanged at 2.1% year on year.
Service sector growth remained dominant accounting for 80% of total output in the economy. Manufacturing and construction (accounting for almost all of the remainder) fell by 0.5%. Real investment growth continued to fall but there was some good news on trade as export growth was up by almost 5% and import growth was flat in the quarter. Blip or flip? More of a blip, the trend in trade will not be sustainable for the year as a whole. Imports will increase as the economy grows. Exports will suffer as world trade slows.
World Trade : according the the latest data from the CPB World Trade Monitor, world trade growth slowed to 2% in the first six months of the year. Although the latest data from the USA, China and Europe is more positive on output, UK export growth will be a challenge over the next six months.
Our current forecast for world trade growth is just 3% but even this may be too optimistic. Particularly if we examine what is happening to the BISTO kids. Brazil, Indonesia, India, South Africa and Turkey are facing the challenge of currency weakness as capital flows are repatriated to the USA. The BRIC wall is under pressure as the beginning of the end of tapering in the USA, i.e. the end of QE, is putting real yield into US treasury investment once again. Dollars are returning to the homeland as Uncle Sam calls time on financial repression.
Government Borrowing: In other UK news, the government borrowing figures were released on Wednesday. At first glance the figures for July Public Sector Borrowing were disappointing. Borrowing was £0.1 billion, this was £0.9 billion higher than last year when the government was in surplus.
Not a huge amount - it’s only a £ billion after all - but it would appear the trend is heading in the wrong direction. A closer look at the figures reveals, receipts in the first four months of the year were 10% up on prior year driven by a steady increase in VAT receipts (up by 3%) and a significant increase in tax receipts, income, capital taxes and other taxes. Spending, on the other hand was up by just 4% in the year, interest payments and social security spending increased by less than 2%.
In the current financial year, for the Chancellor, the news will get just better. On current trends we expect borrowing to fall to around £100 billion as spending plans are limited and an increase in growth, jobs, incomes and spending boosts receipts. The overall picture for the Treasury will look much better as the year progresses.
What happened to sterling?
Sterling responded to the economics news, moving lower. The pound closed at $1.5569 from $1.5633 and at €1.1629 from €1.1713 against the euro. The dollar moved up against the yen closing at ¥98.6 from ¥97.50
Oil Price Brent Crude closed up at $111.04 from $110.40. The average price in August last year was almost $115. We expect oil to average $112 in the current quarter.
Markets, stabilised - The Dow closed at 15,010 from 15,081. The FTSE closed down at 6,492 from 6.499.99. A further chance for market makers to clean out the bear pit. A good time to average in. We still think the FTSE will clear 7000 within ten weeks.
UK Ten year gilt yields closed unchanged at 2.72, US Treasury yields closed up at 2.82 from 2.83.
Gold closed up at $1,397 from $1,377. The bulls may have it as prices edge higher.
That’s all for this week, don’t miss The Sunday Times and Croissants out tomorrow.
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John Ashcroft is the Saturday Economist, Chief Economist at the Greater Manchester Chamber of Commerce, Economics Adviser to Duff & Phelps and Chief Executive of pro.manchester. The views expressed are personal and in no way reflect the policy statements of organisations with which we work.
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.