Understanding the significance of George Osborne’s Autumn Statement is complicated by political posturing. These eight charts will enable you to cut through the spin and surprise people with knowledge of what really matters.
1. Forget the announcements Read more
Real business investment grew 1.4 per cent in the third quarter, prompting many City economists such as Howard Archer of IHS Global Insight to welcome the fact that “business investment is finally kicking in”. If so, that is hugely important to the UK economic debate. Investment growth will enable the recovery to rebalance away from squeezed households who cannot easily borrow more and more to support spending for a lot longer, exporters whose prospects depend to a large extent on the still-troubled eurozone, and the government which will continue its austerity drive.
The following five charts about business investment should make you pause for thought and raise quite a few questions about data reliability as highlighted by the Bank of England governor on Tuesday.
Investment in buildings, plant and machinery did not drive Q3 growth
Far from investment being important to the 0.8 per cent real growth and 1.7 per cent nominal growth in the third quarter, this chart shows that the good growth figures were almost entirely generated by household consumption and a build-up of unsold stocks within companies. Investment contributed only 0.1 percentage points to the 0.8 per cent growth. Read more
The Bank of England is a powerful organisation, which rarely hears criticism from insiders or outsiders because economists are quite polite people.
A leading economist I respect sent me these views on the communication of forward guidance, but did not want to be identified. I thought they deserved an airing. So in the style of the secret footballer, here the “secret economist” compares what senior BoE officials say about guidance with what they mean.
What we say … and what we mean
This is the right policy for a recovery … Please forget all that stuff about guidance is the right policy for an economy that is flat-lining.
We have made policy more effective …We can’t explain how. This statement sounds like code for a change in the stance of policy, but we don’t want to re-open that can of worms.
I’ve written quite a bit about the effectiveness of the Bank of England’s forward guidance on monetary policy. One reason is that the BoE has been willing to say guidance “makes the exceptionally stimulative monetary stance more effective”, but not by how much. Indeed, the governor and other officials have always — and sometimes embarrassingly –dodged questions about whether the BoE thinks guidance imparts stimulus at all.
There is no easy answer to the question of how much stimulus has forward guidance imparted. That said, I think I have found a reasonable method for reverse engineering the answer to a different question: what effect did the Monetary Policy Committee believe could be attributable to forward guidance? Read more
At Wednesday’s Bank of England inflation report, the Monetary Policy Committee took a look at its August economic forecasts and said “what bunch of extreme pessimists produced these?” No one needs to answer that question.
The MPC then revised its growth forecast sharply higher with the consequence that unemployment was expected to fall much quicker, hitting 7 per cent 18 months earlier than it thought in August. But the best news for people in Britain was that in the November forecasts imply the people in charge of interest rates think inflationary pressures are weaker than in August, so more rapid growth and lower unemployment comes without the cost of higher inflation.
In times past, such an inflation report would have been seen as dovish. Even with stronger growth expected, the inflation forecast was revised down so there was less need to tighten monetary policy. Everyone would have understood the meaning. Read more
The Office for National Statistics has just published October 2013 inflation figures. These show the consumer price inflation rate falling from 2.7 per cent in September to 2.2 per cent last month, a much greater fall than the average of economists’ expectations of a drop to 2.5 per cent. The discredited retail price index, which is still used to uprate index-linked government bonds, rail fares and other utility bills fell from 3.2 per cent in September to 2.6 per cent. The essential news and context comes in the following five charts.
1. Inflation falling faster than Bank of England expected Read more
The well-worn chart below is often taken to show chronic lack of effective demand in the economy. It shows the level of gross domestic product (in red) alongside a trend line from 1997 to 2008 (in blue). Output is now 18 per cent below the previous trend and this purports to signal the failure of the British authorities to stimulate the economy sufficiently over the past five years.
Industrial production and manufacturing figures for September were published by the Office for National Statistics this morning. They showed manufacturing picked up in September a little more than the statisticians had expected when they estimated third quarter economic growth, but not enough to trigger a revision to the 0.8 per cent initial growth estimate. The following five charts add some detail and put the figures in context.
1. Manufacturing still has a long way to recover Read more
This morning the Bank of England published its monthly Bankstats. These are a treasure trove of information with the headline data showing mortgage approvals at their highest rate since 2008. But the BoE release contains much more information than that, which is summarised in the following four charts. These are better than the charts the BoE publish in their press releases as they show a much longer time series and attempt to put the figures into context.
1. Mortgage approvals Read more
The Office for National Statistics reported today that the economy grew 0.8 per cent in the third quarter of the year. Here are six charts which explain the importance of the data
1. Growth is back at normal levels Read more