Today brings the UK into focus and we can start with something rather extraordinary. The recent position for the UK has improved as forecasts of recession for the end of 2022 foundered somewhat on the relatively strong GDP report for November. It is still possible but according to our official statisticians December would have to be worse than -0.5% for GDP. Also as we have been noting the energy situation has been seeing quite a lot of improvement symbolised this morning by the UK having an electricity surplus of 2.5 GW at 8.30 am. As a figure of note we had a record export to France of 4.08 GW so the damaged interconnector must have been repaired and both we and they have a little more energy security.
However one organisation seems to have ignored that.
The UK economy will shrink and perform worse than other advanced economies, including Russia, as the cost of living continues to hit households, the International Monetary Fund has said.
The IMF said the economy will contract by 0.6% in 2023, rather than grow slightly as previously predicted. ( BBC News )
The next bit is rather bizarre unless of course they want the UK economy to weaken.
However, the IMF also said that it thinks the UK is now “on the right track”.
Also the BBC seems to have changed what the IMF does in a curious description.
The IMF, which works to stabilise economic growth, said it had downgraded its forecast for the UK because of its high energy prices, rising mortgage costs and increased taxes, as well as persistent worker shortages.
Actually those who recall last autumn can remember that the IMF was against the UK lowering taxes! Anyway this is a pretty regular occurance from them and unless we did grow by 4,7% as they forecast we need not worry too much.
IMF chief economist Pierre-Olivier Gourinchas told the BBC that last year, the UK had “one of the strongest growth numbers in Europe”.
There is something a little more hopeful in that the BBC has realised its economic coverage has been a problem and has reviewed it.
We think too many journalists lack understanding of basic economics or lack confidence reporting it. This brings a high risk to impartiality.
I think they are trying to change and on a personal level I was interviewed on The Nihal Show on BBC Radio 5 Live towards the end of last year. But to really step forwards they need to start at the top and they have had a succession of economics editors more interested in politics than economics. This has got worse with self-proclaimed “Brexitologist” Faisal Islam.
The Bank of England
This week the Bank of England will raise interest-rates again so let us start with the numbers from this morning from what is always its number one priority.
Net borrowing of mortgage debt by individuals decreased from £4.3 billion to £3.2 billion in December . Gross lending fell from £25.1 billion in November to £23.3 billion in December, while gross repayments were broadly unchanged at £21.0 billion.
It is simply bad luck for the research student who came up on the rota as presenting the morning meeting and they are probably already checking the job ads page. Such checks may get frantic after having to present this next bit.
Approvals for house purchases, an indicator of future borrowing, decreased to 35,600 in December, from 46,200 in November. This was the fourth consecutive monthly decrease in approvals for house purchases, and the lowest since May 2020.
Perhaps Governor Andrew Bailey may be concentrating on his morning espresso as this gets announced.
If the onset of the Covid-19 pandemic and period immediately thereafter is excluded, house purchase approvals are at the lowest level since January 2009 (32,400).
Actually as this is the first time that the Bank of England has increased interest-rates on any scale ( the previous peak was 0.75%) that is hardly a surprise. But inside the Bank of England we are looking at a situation where house prices are the one thing they can influence quite easily and then claim Wealth Effects. So they are no facing the opposite of that. On that road the hits keep coming.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 32 basis points to 3.67% in December, the largest monthly increase since December 2021, when Bank Rate increases began. The rate on the outstanding stock of mortgages increased by 12 basis points, to 2.50%.
With mortgage rates where they now are only those who have to remortgage will be doing so.
Approvals for remortgaging (which only capture remortgaging with a different lender) fell to 26,100 in December from 32,600 in November, the lowest level since January 2013 (25,800).
Unsecured Credit
I have to confess I was expecting more borrowing here as a response to the increased cost of living whereas in fact we were told this.
Individuals borrowed an additional £0.5 billion in consumer credit in December, on net, following £1.5 billion of borrowing in November.. This was lower than the previous 6-month average of £1.2 billion.
The impact of that echoed further as I noted this.
The additional consumer credit borrowing in December was split between £0.5 billion of repayments on credit cards, the first net repayment since December 2021, and £1.0 billion of borrowing through other forms of consumer credit (such as car dealership finance and personal loans), the highest since October 2019 (also £1.0 billion).
In terms of the structure we can easily see why people would switch to personal loans if they can.
The effective interest rate on interest-charging overdrafts in December fell by 116 basis points, to 19.77%. Conversely, the effective rate on new personal loans to individuals increased by 29 basis points, to 8.16% in December. The effective rate on interest bearing credit cards also rose to 19.55% in December, from 19.24% in November.
But the lower total is interesting and will further concern the Bank of England.
Money Supply
We saw a further washing out of the September impact on these numbers.
The net flow of sterling money (known as M4ex) decreased to -£34.7 billion in December, from -£24.0 billion in November. This was mainly driven by net flows of non-intermediate other financial corporations’ (NIOFCs’) holdings of money decreasing to -£34.2 billion in December, from -£24.4 billion in November.
That brings the annual growth rate for broad money back to 2.7%. So we are seeing the brakes being applied by the Bank of England here.
Comment
These numbers are pretty consistent.We have a weaker mortgage market and money supply growth and maybe people unwilling to pay a higher interest-rate for unsecured credit. To my mind that again points to the Bank of England raising interest-rates by 0.25% this week rather than the 0.5% many still seem to expect. There is of course the US Federal Reserve in the meantime as a potential wildcard but I expect the same from them.
Meanwhile there is another cleat sign of inflation and indeed financial exhuberance around. Let us look at a timeline for receipts by Brighton football club.
At the time £50 million ( Arsenal) for Ben White seemed a lot
Then £62 million ( Chelsea) for Marc Cucurella seemed a lot
Now £75 million ( Arsenal) for Moses Caicedo is apparently not enough
There are successes here for The Premier League as a whole and for the transfer policy of Brighton which has been quite a profit centre. But there is quite a bot of inflation as well……