There is a chart regarding the UK economy which has become so ubiquitous it is known in our office simply as “the Niesr chart”, because it is often republished by the National Institute of Economic and Social Research. It is supposed to be a clear and concise account of Britain’s recent economic woes, putting the recession into accurate context of past recessions. It shows the current recession as the longest and nearly the deepest since the start of the 1930s. People don’t generally know that in the UK the 1920s recession was much worse, but I’ll leave that for now.
Here is the latest version of “the Niesr chart”, published today. Take a good look at it before I tell you why I have begun to become irritated by it.
It is arresting because it does most things right. It is simple to understand. It is clearly drawn and obviously in context. The problem is that that the Niesr chart might be showing us irrelevant nonsense. It is also not a sufficient description of the UK’s recession. Read more
Britain is back in recession – gross domestic product fell by 0.2 per cent in the first quarter of this year – following a 0.3 per cent fall at the end of 2011. What should we make of the figures?
1. Is this a deep recession?
No. It is nothing like 2008-09 when output dropped 7 per cent over five quarters. In truth, as Joe Grice, chief economist of the Office for National Statistics said, the economy has been broadly flat since the third quarter of 2010. Some quarters up a bit, the others down. The level of output is now measured at an index number of 98.1 (2008=100) and it was 98.3 in the autumn of 2010. Read more
What was that infamous “Jo Moore” phrase again?
Yesterday certainly was “a good day to bury bad news”. As all eyes were focused on the News of the World phone hacking scandal, the government slipped-out an announcement that its preferred candidate for the new chair of the UK Statistical Authority withdrew her candidacy.
MPs were not convinced Dame Janet Finch, a paid up member of the non-executive great-and-the-good, she was sufficiently independent to be an effective watchdog over official statistics and ministerial spinning of data. The good news for all those interested in clear official data and wider access to information held by government is that the next candidate put forward by government must know they are there to serve the public not the government.
This creates the possibility of a new dawn for UK statistics. all areas including monetary policy will be more transparent and, even if pre-release of data to ministers is curtailed, the Bank of England is unlikely to find its job of controlling inflation compromised.
What was wrong with Ms Finch? She gave a shocker of an interview to MPs last week. Read more
Mervyn King has just delivered an important speech in Newcastle. As ever with the Bank of England governor, it is extremely well-written and his argument is tight. The speech is, however, infused with overwhelming self-belief and even arrogance in the face of difficult economic circumstances. Those, in a nutshell, are Mr King’s great strengths and weaknesses.
This is far from an attack on the governor. I think his “big picture” view is correct, but his unwillingness to concede mistakes undermines policy and damages the Bank’s credibility, making the Bank’s job of getting its message across rather harder than it need be.
The big picture should come from him.
“We must not lose sight of the big picture. Large – very large – shocks to relative prices are an inevitable part of the real adjustment vital to the rebalancing of the UK economy.
In recent weeks, the Bank of England’s problem has been inflation. It is too high at 3.7 per cent in December and going higher. Now the Bank has something apparently worse on its hands: stagflation. The Office for National Statistics has just shocked everyone by saying the UK economy contracted by 0.5 per cent in the final quarter of 2010. Expectations had been for a 0.5 per cent increase.
Nothing could cheer the Monetary Policy Committee more. Now it can bat away suggestions it should be raising interest rates with the comment that this would be nuts as the economy is again contracting. High inflation is nothing to worry about if the economy is still in intensive care. Read more
In a mixed set of British labour market figures today, unemployment was up, the claimant count was down, and earnings growth was rather flat. There was nothing in the figures to suggest inflation is getting out of control and when you look at the details of the Labour Force Survey data, it becomes clear that the employment picture will worsen over the next two releases.
How can I be so sure? Because the official employment and unemployment figures are based on a rolling three-month average, but the Office for National Statistics also publish monthly data for transparency. November was a shocker. The charts show this, with the employment rate falling to its lowest level since the crisis started offset by a spike in inactivity not unemployment. Read more
In today’s forecasts for the 2011 UK housing market, the Council of Mortgage Lenders worries that banks and building societies will not be able to lend much next year, partly because they will have to refinance large amounts of wholesale lending and pay back £130bn to the Bank of England in respect of the 2008 Special Liquidity Scheme which will expire in January 2012.
It says prospects have improved, but still implies that borrowers will be the main losers of the Bank’s demands to be repaid:
“The big issue for lenders next year will be to re-finance existing wholesale borrowing and begin to pay back the very large amounts of funding advanced through official support schemes. However, the prospects of them being able to do this without adversely affecting the market have improved. The amount due to be repaid under the special liquidity scheme by January 2012 has declined from about £180 billion to around £130 billion currently.
We are beginning to see a flurry of concern at the Bank of England about high UK inflation. The annual rise in the consumer price index in November was 3.3 per cent, well above the 2 per cent target and higher than City expectations. The Monetary Policy Committee would have had sight of this figure last Thursday when it kept monetary policy on hold. Even so, there does appear to be a rising level of concern in Threadneedle Street about inflation.
We know from votes and speeches that Andrew Sentance is worried about the credibility of the Bank of England’s monetary policy when inflation is persistently far from target. He is not sounding such a lone voice these days, however. Charlie Bean’s speech yesterday was notable for the increased concern over inflation and Spencer Dale noted earlier this month that the Bank “might not appear to have done a very good job recently” in hitting the inflation target.
As the chart shows, the MPC collective forecast also shows a reasonable risk of inflation exceeding 4 per cent in the year ahead. Read more
Giving evidence to the Treasury Select Committee this morning, George Osborne claimed the UK economy was back on track.
He added that it was pretty clear to him that the previous Labour government had overstated trend growth for much of its time in office and there had been a big “boom” in the economy for much of the decade.
Warming to this theme, the chancellor referred the Committee to his favourite chart of the June Budget, which shows what the output gap would have looked like if a more modest figure – and what Mr Osborne said was “more realistic” estimate for trend growth – had been assumed by the previous government. Read more
These are the clearly audible words spoken by Michael Fallon, member of the Treasury Select Committee, to Andrew Tyrie, the Committee chairman at the end of the evidence given by Robert Chote, new chairman of the Office for Budget Responsibility.
Why did Mr Fallon MP call for the return of the Treasury’s chief economic adviser rather than the shiny new representative of the independent OBR?
Briefly, because Mr Chote irritated the Committee by playing with a dead straight bat, avoiding questions and talking round issues. The Committee was upset that the OBR had not performed sensitivity tests on not-so-extreme scenarios such as large exchange rate fluctuations following a crisis in the eurozone and that the scenarios tested by the Office were pretty benign.
The result was much as with Martin Weale’s appointment to the Monetary Policy Committee Read more