UK Economic Growth Revised Upward

Marketwatch details:

The British economy grew slightly faster than previously estimated in the second quarter, with gross domestic product expanding by 1.2%, the Office for National Statistics reported Friday.

The ONS had previously estimated second-quarter GDP growth of 1.1%. Compared to the second quarter of last year, GDP grew by 1.7% versus a previous estimate of 1.6%. A survey of economists by Dow Jones Newswires had forecast no revisions to the data.

The growth marks the strongest quarter-on-quarter rise for British GDP in nine years.

Construction output was revised to show an 8.5% quarterly rise, up from a previous estimate of 6.6%. Output by production industries rose by an unrevised 1%.

Services output was revised down to show 0.7% growth, but still accelerated from 0.3% growth in the first quarter.

Source: Stats.UK

UK CPI in Check

UK inflation was an area of my focus due to the large depreciation of the Pound, importance of the banking sector in the overall economy, and quantitative easing pursued. Even after all of that... inflationary pressures seem to have stalled (for the time being at least). Daily Markets details:

U.K. annual inflation slowed in June on fuel prices, suggesting that the central bank will keep the interest rate at the current level well into 2011.

Annual inflation slowed to 3.2% in June from 3.4% in May, data from the Office for National Statistics showed Tuesday. Inflation slowed for the second straight month. Still, the figure is above the central bank’s 2% target. Economists were expecting the annual rate to slow to 3.1%.

Falling petrol and diesel prices are by far the main drivers to the downward pressure to consumer price annual inflation between May and June, the ONS said. At the same time, the main upward pressures to inflation were the sharp rises in air fares and increases in insurance premiums. Clothing and footwear prices recorded the biggest drop for June.

To underpin the fragile economy amid severe fiscal consolidation, the Bank of England had left its key interest rate unchanged at a historic low and maintained the size of the quantitative easing at GBP 200 billion on July 8. The central bank is more likely than not to keep interest rates down at 0.50% into 2011 as recovery remains bumpy and gradual with major fiscal tightening and the Eurozone’s problems posing serious threats to UK growth prospects, said IHS Global Insight’s Howard Archer.

Source: Stats.Gov.UK

UK Housing: The Benefit of a Weaker Currency

While a weak currency isn't ideal in all situations, it seems that a weaker sterling is helping to reinflate the U.K. housing market. Ed over at Credit Writedowns provides details of the rebound:

The Nationwide, the UK’s largest building society, released data this morning showing that UK house prices rebounded in March from February’s dip. The average UK home now costs £164,519, up 9% from year ago levels. Much of the increase has been driven by supply-demand imbalances with a dearth of properties coming to market in the poor economic climate of 2009.

A weak sterling has caused the housing market to be awfully attractive to investors outside the U.K. An example can be seen below, comparing the change in the price index in both local currency (sterling), as well as the dollar.



Source: Nationwide / Yahoo Finance

U.K. GDP Figure Disappoints

WSJ details:

The Office for National Statistics said Tuesday that compared with the third quarter, gross domestic product in the three months to the end of December increased 0.1%. Compared with the fourth quarter of 2008, GDP fell 3.2%. While the data showed that the U.K. officially emerged from a deep recession that began in the second quarter of 2008, the market was disappointed with the 0.1% amid consensus of a 0.3% gain.

Source: Statistics.UK

UK Economy Continues to Contract

The U.K. "surprised"with a 6th straight quarter of contraction. George Buckley of Deutsche Bank via the Telegraph with the details:

"The worst thing is that every single component of GDP that was published did not rise. It's a bad number. It's the first time that we have seen a six straight quarters of contracting GDP - this is akin to the peak to trough we saw in the 1980s."

"It raises the possibility they (Bank of England Monetary Policy Committee) will have to do more on QE. This will surprise the MPC. This means you've got more spare capacity. It means inflation will be pulled down more."

Source: Stats.Gov.UK

U.K. Production Slumps to 1992 Levels

More traveling (halfway through a three week world tour) this afternoon, BUT will try to post TODAY (not tomorrow) on the upcoming consumer credit and Treasury budget release. In the meanwhile, some "yesterday's news" that seemed to have been lost in yesterday's Aussie rate hike, dollar cliff dive, equity / commodity spike.

Things in the U.K. are not only NOT getting better, but they are still deteriorating (in some cases to 17 year lows). Bloomberg details:

U.K. manufacturing production unexpectedly slumped in August to the lowest level since 1992, a sign the economy is struggling to shake off the recession.

Factory output dropped 1.9 percent from the previous month, the Office for National Statistics said today in London. Economists predicted a 0.3 percent increase, according to the median of 26 forecasts in a Bloomberg News survey. The index of manufacturing fell to 87.8, the lowest in 17 years.

Bank of England policy makers have cautioned that the credit squeeze and weak demand at home and overseas may hamper the economy’s escape from the worst recession in at least a generation. The central bank will keep up its 175 billion-pound ($280 billion) asset-purchase plan this week as officials gauge the strength of the recovery, economists say.

The data are “shockingly bad,” said Alan Clarke, an economist at BNP Paribas SA in London. “This starts to concern us that we’re losing momentum a bit earlier than we’d feared. We’re out of recession but it’s far from good growth yet.”

But, who cares about the actual economy when equity and home prices are up? The result, expectations from the Nationwide survey show serious signs of optimism.



But, will this optimism be enough to lead the actual economy to those heights seen in financial / asset markets?

Source: Stats.Gov.UK

UK: Housing Issues Over?

Missed this yesterday. Credit Writedowns with the details:

UK house prices have now risen for three months consecutively and four months in five according to statistics released by Nationwide Building Society this morning. The rise for July was a very robust 1.3% month-on-month, which translates into almost 17% on an annualized basis. Clearly, housing is doing very well during this summer selling season.

Source: Nationwide

UK Economy Shrinks by Record Level

Bloomberg reports:

The U.K. economy shrank more than twice as much as economists forecast in the second quarter as a record annual slump in construction, banking and business services kept Britain mired in the recession.


Gross domestic product contracted 0.8 percent from the first quarter, the Office for National Statistics said today in London. Economists predicted a 0.3 percent drop, according to the median of 32 forecasts in a Bloomberg News survey. From a year earlier, the economy shrank 5.6 percent, the most since records began in 1955.

Source: National Statistics

U.K. Post Largest GDP Drop in 50 Years

WSJ reports:

The U.K. economy posted its sharpest decline in more than 50 years in the first quarter, suggesting the recession has been even harsher than previously thought, the Office for National Statistics said Tuesday.

The ONS said the economy slumped a downwardly revised 2.4% in the first quarter, which was narrowly the largest decline since the second quarter of 1958. The annual decline in output was 4.9%, the largest since records began in 1948. Economists had expected a smaller downward revision in the first-quarter gross domestic product data. In a Dow Jones Newswires survey last week, they forecast the economy would shrink 2.2% from the previous quarter and 4.4% from a year earlier.

Source: BLS

UK GDP Down Most in 30 Years

Daily FX with the details:

U.K. Q1 GDP contracted much more than expected, falling 1.9% quarter over quarter and 4.1% year over year, versus our survey median estimates for -1.6% and -3.8% respectively, highlighting the severity of the U.K. recession at the beginning of the year.

Total industrial production declined by 5.5% quarter over quarter, the largest quarterly drop since records began in 1948, emphasizing the very dire state for the sector. Meanwhile, manufacturing output fell by an even sharper 6.2% quarter over quarter , which was also the worst ever on record.

Historical Time Series


Recent Breakout


Source: Statistics.Gov.UK

Maybe This Inflation Thing Wasn't Actually Quashed (UK CPI Up)

Anytime I can use the word "quash", I am a happy man. ForexPros details the surprise jump in the UK's CPI:

"The U.K. Consumer Price Index moved higher in February, to 3.2%, from 3.0% one month earlier. Even though the CPI declined at a record pace last month, this month the inflation gauge rose. In addition, the Core CPI, which excludes volatile items, rose to 1.6% from 1.3% last month. To some extent, the CPI number does not justify the BoE’s concern of “undershooting” the inflation target.

The largest upward pressure on the CPI annual rate came from food and non-alcoholic beverages. The effect was widespread but the largest individual factor was the price of vegetables, which rose by more than a year ago. The only large downward pressure on the CPI annual rate came from housing and household services.

Source: Statistics.Gov.UK

UK GDP Down at Lowest QoQ Level in 29 Years

FT Alphaville reports:

The UK's in recession and it's worse than we thought. The quarterly figure is the biggest (decline) since Q2 1980, while full-year GDP is the weakest since 1992. The standout disaster was manufacturing, down 4.6 percent on the quarter.

U.S. vs. U.K.: Relative Use of "Liquidity" Facilities

The Telegraph points out that use of the U.K.'s liquidity facility may be significantly larger than first thought:

When Bank Governor Mervyn King first unveiled the Special Liquidity Scheme in April he indicated that it might be used for £50bn, while debt specialists forecast a total take-up of £90bn-£100bn by the time the scheme closed on October 20.

Alastair Ryan, UBS banks analyst, has calculated that "the take-up could be £200bn or more".

Just how large is that?

Yves over at Naked Capitalism puts it into context:

The UK's GDP is roughly $2.8 trillion. The US economy is a bit under $14 trillion, or nearly 5 times bigger (note that on a purchasing power parity basis, the size difference is even greater, over six times). If you use an exchange rate of $1.8 = £1, that £200 billion is equal to $360 billion. The support to the banking system is roughly 75% of the size of the usage made of the Fed's facilities (remember, some like the PCDF, vary a lot over time, while the TAF seems to be fully subscribed) for an economy 20% as large.

Well, that would certainly explain a portion of the recent Pound sell-off.

London Housing Down Across the Board

The Guardian Reports:

Asking prices in London fell 5.3% in August, according to the Rightmove house price survey - equivalent to a £21,000 drop in a single month. Prices in some of the most sought-after suburbs are falling much lower. The average asking price in Wandsworth fell from £522,000 to £481,000 in a single month - or 7.9%. Homes in Brent, Kingston-upon-Thames, Richmond-upon-Thames and Greenwich were down more than 6.5%.

Below we can see that price drops were not contained in just one segment of London's real estate market.






















Source: Credit Writedowns

Pound Getting Pounded

Interesting write-up over at portfolio.com about the issues Britain is facing:

The deflation of the British housing bubble has only just begun. Prices, which rose at roughly double the U.S. rate over the past decade, tumbled about 10 percent from their peak in August 2007 through the middle of this summer. Inflation and unemployment are rising, and Britain is in a bear market.

Things might become worse in Britain than in the U.S. Consumers are more indebted; financial services make up an even greater portion of the economy; inflation takes a much more significant bite because the British have to import so much.

While the pound has crashed against the dollar over past week, the decline against the Euro can be tracked all the way back to last summer when the global housing downturn (and much of their problems) were revealed.

Update: more bad news for Britain...

Merrill has a British operating loss of about $29 billion that it can carry forward indefinitely for tax purposes. The newspaper calculates that at the current corporation tax rate of 28 percent, the bank will be able to offset losses against future profits, reducing its tax bill in Britain by as much as $8 billion.

UK CPI... Look Familar?

While the Bank of England hasn't been nearly as aggressive as the Fed in cutting rates, inflation has crept up to similar levels due to similar culprits; energy (i.e. transportation) and food.


Where's decoupling when you need it?

UK PPI - June

A preview of what we're likely to see here (U.S.) tomorrow morning...






Please note the different time series used below (input data only available from 1992 onward).

UK PMI