How can UK GDP be reported as rising and falling at the same time?

by Shaun Richards

Let us open the week noting an area which is one part of something where the UK is strong. From the UK PPL.

In 2018 Ed Sheeran was once again the most played artist in the UK, according to data from music licensing company PPL. He has held the top spot in three of the last four years – 2018, 2017 and 2015 – and since his first album was released in 2011 he has been in the top five most played artists five times.

Whilst Ed may single-handedly be doing a good job there is far more to it than that.

The PPL said nine of the top 10 most-played artists were British, with Pink being the exception.

The charts were revealed ahead of at its AGM, where the society is due to announce that it collected £246.8 million on behalf of 105,192 performers and rights holders over the last year.

Seven of the top ten tracks also feature British talent, cementing a successful year for the UK industry.

Also let’s here it for the girls.

Her rise ( Jess Gynne) has contributed to a new milestone for the charts; 2018 was the first time that the majority of most played acts were, or featured, women, taking six out of the top ten spots.

Whilst these are domestic numbers according to UK Music much of the success is repeated abroad.

UK Music have today revealed our 2018 Measuring Music report, revealing that UK music industry exports rose by 7% to a record £2.6 billion last year. The UK music industry grew by 2% in 2017 to contribute a record £4.5 billion to the economy – up by £100 million on 2016, a new report by UK Music reveals today.

We do not know the figures for 2018 as we note that the world industry seems finally to be coming to terms with the issue of people in effect hiring or renting rather than buying their product. Trying to criminalise your consumers and customers was a non too bright strategy.

Film

The topic reminded me of the way that the UK film industry has been booming. Although I do not need much reminding because Battersea Park is regularly used by the film industry these days. From the British Film Industry or BFI.

The UK film industry’s GVA in 2016 was £6.1 billion. According to data published by the government in November 2017,
the GVA for all UK creative industries in 2016 was £91.8 billion, so film accounted for almost 7% of all creative
industries’ value added.
As Figure 4 shows, since 2007 GVA for film has increased by over 140%. In 2016 for the film industry as a whole,
distribution accounted for 50% of the total value added, production 40% and exhibition 10%.

As to can see the numbers from the industry do not yet fully reflect the growth we have seen.

Today’s Data

In the circumstances of the numbers reflecting what was supposed to be the post Brexit period we opened the batting solidly.

Rolling three-month growth was 0.3% in April 2019, down from 0.5% in March, but on par with growth rates at the start of 2019.

We can break that down.

The services sector had a positive contribution to rolling three-month growth in April 2019, increasing by 0.2%. The production sector increased by 0.7%, within which manufacturing grew by 1.2%, making it the second-largest contributor to rolling three-month growth. Construction also had a positive contribution, growing by 0.4% in the three months to April 2019.

Every sector was growing with services making GDP rise by 0.16% and construction by 0.02% and production by 0.09%. As we will be looking it in detail I will note that manufacturing was 0.11% ( so other parts of production were weak).

As this included March 29th when businesses had expected us to Brexit that was okay. However it came with a bad number for April.

Monthly GDP growth was negative 0.4% in April 2019, as the production sector and manufacturing sub-sector contracted.

If we look into this we find that we should have been expecting it.

Monthly growth in production was negative 2.7% in April, driven by manufacturing, which contracted by 3.9%.

Why? Well the UK motor industry or SMMT had already told us this.

UK car production falls -44.5% in April with 56,999 fewer units built in extraordinary month. UK commercial vehicle manufacturing declines -70.9% in April, with 2,162 units produced. British engine manufacturing falls -23.4% in April as UK car plant Brexit shutdowns affect demand.

These fed into the wider data and were half the April fall in manufacturing. Actually nearly all the manufacturing categories fell with only wood and paper and electrical equipment showing some growth and they were small amounts.

If we look at the trend we see a different perspective.

Rolling three-month growth in the production sector was 0.7% in April 2019, while manufacturing increased by 1.2%. Within manufacturing, the two largest positive contributors to growth were manufacture of food products and pharmaceutical products. Monthly growth in production was negative 2.7% in April, driven by manufacturing, which contracted by 3.9%.

Or to put it another way it fits this nursery rhyme.

Oh, The grand old Duke of York,
He had ten thousand men;
He marched them up to the top of the hill,
And he marched them down again.

And when they were up, they were up,
And when they were down, they were down,
And when they were only half-way up,
They were neither up nor down.

Are the numbers inconsistent?

Yes they are as the quarterly and monthly numbers are more different than you might think for two reasons.

high growth into February 2019 raised output significantly above the level of output seen in the months November 2018 to January 2019. Despite the declines in March and April, the average output of the current three months is still above that of the previous three months.

Also the quarterly numbers ( Q1,  Q2 etc.) benefit from the other two ways of calculating GDP which are the income and expenditure data.  So it might be better to call them Gross Value Added to distinguish them.

Comment

We have learnt quite a bit today. The first point is the the failure of the UK government and Parliament over Brexit has real word consequences. Remainers will argue we should not be leaving and Brexiters will say we would now be getting on with it. This way round we have had the side-effects headlined by the motor industry changing the date of its annual shut downs without in the end there being any reason for it. So it just looks incompetent.

Moving to the broad trend that remains in line with my argument that the trajectory is of the order of the UK growing by about 0.3% to 0.4% per quarter. The danger is that the trade war issue and signs of slow downs elsewhere build up. For example last week saw interest-rate cuts from two of the competitors at the cricket world cup, with India and Australia playing yesterday. Also there is a warning as economic growth in the services sector seems to have slowed.

Maybe we are seeing the beginnings now of a response to the lower bond yields. As I have been suggesting they will impact fixed-rate mortgage costs.

The average two-year fixed rate has fallen by 0.03% from 2.52% in January 2019 to 2.49% this month, while the average five-year fixed rate decreased by 0.09% from 2.94% to 2.85% over the same period. ( Moneyfacts )

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