The preliminary estimate for GDP in the first quarter of the year was released on Friday. The headline from the ONS was "the slowest rate of growth since" ... last year. UK GDP was estimated to have increased by just 0.3% in the quarter, compared to the prior three months. Growth is slowing according to most lead headlines today in the business pages today. But is it?
As readers of The Saturday Economist know, we prefer to look at the year on year growth rates and not the quarter on quarter comparison. Recent quarter data is adjusted far too often to be reliable as a quick snap guide. The year on year growth rate for manufacturing was 2.8%. The year on year growth rate for production output was 2.5%. The year on year growth rate for services was 2.5%. Construction output increased by 1.9%. The weighted growth rate for the economy as a whole in the first quarter of the year must have been 2.4%. A growth rate of 2.4% compares to growth of just 1.8% in 2016.
Manufacturing output is boosted by strong output in the car sector. Strong growth is reflected in the fall in government borrowing. The ONS overall growth figure (year on year) as published is just 2.1%. That's a statistical impossibility given the strong contribution from production, services and construction accounting for 99% of total output. Strong growth continues into the first quarter of the year. We expect growth of between 2% and 2.4% for the year as a whole. US growth in the first quarter was 1.9%. Sterling is rallying against the Dollar as the reality of a rate hike in the UK is dawning and the prospects for Fed rate hikes is waning ...
In other news this week ...
Government Borrowing falls to £52 billion in 2016/17
Government borrowing fell to £52 billion in the financial year down by £20 billion from prior year. Public Sector Net Debt was £1.73 trillion, up by £123.5 billion in the period equal to 86.5% of GDP.
Current receipts increased by 6% in the period boosted by strong growth in income tax and NIC contributions. VAT revenues were relatively modest given the low inflation outlook over the twelve months. Current spending increased by just 2% over the period. The Treasury has secured a prime fiscal surplus based on current revenue and spending out turns.
So what of the years ahead? The OBR expects borrowing in the current financial year to increase to £58 billion, thereafter reducing to £41 billion in 2018/19. Given the drive to achieve an overall surplus in the next parliament, there will be little to give away in the Tory manifesto, although a further five year mandate will extend the timetable slightly if required. As it is, government borrowing could be eliminated within four years.
Best month since 2000 for UK car manufacturing ...
Exports continue to drive British car manufacturing in March as demand increased by 11% in the month according to the latest data from the SMMT. Overseas demand, accounting for over three quarters of sales, helped to push overall production to a 17 year high as output hit 471,695 units.
Mike Hawes, Chief Executive said, "UK car manufacturing is accelerating thanks to the billions of pounds of investment committed over the last few years. Much of our output goes to Europe and it is vital we maintain free trade between the UK and the EU or we risk destroying this success story."
1.7 million cars were built in the U.K. in 2016 of which 70% were exported to the EU and the rest of the world. Output in 2017 is expected to increase to 1.8 million units as growth in the World and European economies continues. Car production and sales are interconnected with the EU. Motor, aerospace, finance and big pharma are the sectors most at risk from a "hard" exit. Negotiators would be wise to heed the Hawes call ...
So what happened to Markets?
The Dow closed at 20,950 from 20,566. The FTSE closed at 7,224 from 7,114.
Sterling was up against the Dollar to $1.294 from $1.279 and was down against the Euro to €1.187 from €1.197. The Euro moved up against the Dollar to 1.089 from 1.068.
Oil Price Brent Crude closed at $51.64 from $51.72. The average price in April last year was $41.58.
UK Gilts - yields moved up. UK Ten year gilt yields closed at 1.10 from 1.05. US Treasury yields moved up to 2.32 from 2.25. Gold closed at $1,269 from $1,286.
That's all for this week. Don't miss our economics update at PwC Manchester on the 18th May. It's usually a sell out so make sure you book now!
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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.