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It's a mixed bag, and some of the messages strike
us as likely to change through time, but we come away from this
morning's batch of releases with a sense of disappointment. As much
as the growth environment looks solid for now, and we expect the
composition of demand and income to change in a way which supports
sustainability through time, one cannot deny that
the data in hand do
raise questions about the underlying health of the
expansion:
- GDP growth for 3Q was unrevised at 0.8% q/q sa,
despite a large upward revision to construction output. We had
expected an upward revision to 0.9% q/q sa, and weighting the
quarterly percentage increases in sectoral output for the quarter
we come to 0.855%, so this one must have been close in the
rounding. The overall level of real GDP, however, has been revised
up by 0.6% compared to the last release, thanks to revisions to GDP
growth over 2012Q3 to 2013Q1. Remember the worries about triple dip
early this year? 2013Q1 GDP is now shown having risen 0.5% q/q
sa.
- The news on the composition of growth is mixed.
The good news is that the upward revisions to recent business
investment growth rates we have been anticipating are beginning to
come through, with cumulative growth during 2013 now shown at 2.8%
rather than the 0.5% reported previously. It is worth emphasising
that at 2.0% q/q in 3Q real business investment was growing more
than twice as fast as GDP as a whole, and we expect further signs
of strength in business investment to be evident as we move through
the coming months. The bad news is that consumption continues to
look strong relative to income growth, and the current account
deficit remains wide. Nominal household consumption grew by 1.7%
q/q sa in 3Q, while nominal labour compensation grew by just 0.2%.
This was enough to push the savings ratio down to 5.4% having
averaged near 7% through 2009-12. Add spending on the housing stock
to consumption, and the household sector is once again spending
more than its total income and running a financial
deficit.
- The balance of payments data report a very
large 5.1% of GDP deficit for 2013Q3, even though the 2Q deficit
was revised significantly smaller. The big picture in this data set
remains that while the trade deficit is swinging around 2% of GDP
(and swung beyond that in this release), swings in the investment
income balance are driving both the quarterly noise and the
worrying weakness in the trend. A high rate of earnings on UK
financial assets abroad had been a key support to the balance of
payments on a secular basis, and the erosion of the surplus on
investment income is leaving a conspicuous hole.
- Given recent employment strength, a pop in 4Q
GDP would go a long way to easing some of the current concerns on
productivity. The index of services for October, however, showed
growth of only 0.1% m/m sa and gives no sense that the official GDP
series is going deliver a jump in 4Q. The weakness in the October
data was relatively narrowly based, with a 7.1% m/m sa drop in the
accommodation sector helping to pull the hotel, restaurant and
distribution sector down. Given that the survey data remain solid
and the monthly services data are very revision prone, we are not
inclined to change our 4Q GDP estimate (0.9% q/q sa) at this stage,
but the trajectory of the services data does shift risks on the
prelim print to the downside.
- Public sector net borrowing came in £2bn higher
than we expected at £16.5bn in November (this is on ex-financial
interventions measure). Moreover, cumulative borrowing through to
October was revised up by £2.6bn. Though we continue to think the
bias is toward an undershoot of the £111bn deficit for 2013/14
projected by the OBR earlier this month, the November data suggest
any undershoot is likely to be relatively small.
Apologies for the absence of charts, owing to IT
issues.
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