Friday 9 August 2019

UK Economy shrinks by 0.2% in Q2 2019

Quite a surprise today that the ONS has the UK economy shrinking by 0.2% in the second quarter.

Just a couple of days ago the services PMI read came out as 54.5, well above fifty and as the largest part of the economy, normally enough to carry the overall GDP numbers up.

However, a further drop in construction and also a drop in manufacturing (where stockpiling for a March Brexit boosted Q1) has been enough to see the economy slide into negative territory.

There is no much good news to be had here, with another Brexit shock due to hit in Q4 there won't be any recovery in Construction or much in Manufacturing - which is hugely hurt by the disaster of diesel car sales which disproportionately UK factories were set up to produce.

Services can help to keep the UK out of outright recession, but it will be touch and go as Politics is set to head into meltdown in September and that itself will temper optimism and business investment, as well we job hiring.

The UK really needs to go sign a Brexit deal and move on. Hard Brexit, on the back of what will already be an ailing economy now, will push us into a nasty recession. Not 2008 levels, but certainly early 90's pain.

The FTSE100 will hold up due to dollar earnings, the 250 and AIM are going to fare less well.


Anonymous said...

There is no "Brexit Deal" to sign. The EU have refused to negotiate a deal since the Referendum.

They might be prepared to negotiate a deal after we leave, but such negotiations will take at least ten years.

Don Cox

Anonymous said...

Who do recessions impact the most?

So long as you don't lose your job, plan to sell your house or take out your market linked savings/investments, then do recessions really have that much negative impact on you?

In some ways for the vast majority of consumers, recessions can be good as everything gets cheaper as retailers start discounting like crazy.

Gnome of Geneva said...

Hard to see how a deal is reached but still possible. Playing chicken with the economy is no way to govern. It's causing investment to dry up, although a lot of the Brexit mitigation work was completed by March (we moved assets from London to Luxembourg and 24 jobs to Geneva in time for the March deadline).

One can see why a snap election will tempt Johnson and his entourage: the consequences of no deal will start making headlines in November and that's before any looming recession that will be easy to pin on them and their policies.

DJK said...

As discussed yesterday, to equate "the economy" with small changes in the latest GDP numbers (which may yet be revised) is to miss the bigger picture. Yes, this will cause 24 hours of fury at Westminster and on news 24, but people voted for Brexit (Brexit! not May's "deal") for many other reasons.

CityUnslicker said...

Don - there is May's deal, it is Brexit of sorts. it is more Breixt than joining the EEA and EFTA and I would be happy with that too.

No Deal, project fear nonetheless, will cause much short-term disruption, so I am not a fan.

Anon - great comment on recessesions, the big IF is key though - how secure is YOUR job? Also ask grads who enter the job market or pensioners who retire during recessions how things are for them...

Jan said...

Any slow down in the UK will be blamed on Brexit of goes without saying. But the rest of the world is slowing too and this is conveniently left out of the discourse.

Lord Blagger said...

Same reason that Germany doens't have a recession, France doesn't have a recession

This is from an organisation that says the UK state doesn't owe anyone a pension and fiddles its accounts.

When you say you adhere to IFRS accounting standards, you can't ignore them when it doesn't suit

Bill Quango said...

Anon - recessions, who does it effect?

Everyone I knew in banking in 2008, has been fired. Everyone. There are no survivors. These were the top people.
But also, the bottom people have gone as well. The actual brick banks closed, along with the specialist departments in the city.

In retail, half of everyone I know is gone. As I’m in the independent sector, this is most unusual. Independent’s soldier on, sell to another, or go bust.
The 2008 recession has lingered on in retail since then. And taken half with it. Many, not replaced by anything at all.

The issue with a recession is it forces business to make cuts and to change focus. It becomes a scrabble to survive on what is available at the water hole. And what is available isn’t enough to keep going.
And so tax take is down too. As benefit and welfare demand is rising. We have only had a handful of months out of official austerity. There’s no padding to shed.

This means less jobs, more automation.

Raedwald said...

The UK is hardly alone in feeling the coming global downturn - and I reckon Germany will be officially in recession before we will. Compared to the effects of the US-China trade showdown, the diesel vehicle scandal, the move to electric vehicles and the global asset bubble reaching its peak, Brexit is just a minor externality. And if Trump whacks Germany with Nordstream II sanctions, that won't be our fault either.

Taking the long view, leaving when the world is on the cusp of a major slowdown is prolly better for the UK than leaving in the middle of a boom cycle. FDI Investment is holding back precisely because we *haven't* left - once we have the certainty of being OUT and have an agile, forward, thrusting, bucannering government with a decent majority, that FDI will come pouring back, our advantages will re-assert themselves and as the Eurozone tanks they'll be begging us to take their rotting Camembert ...

And Bill, as to the Hysteresis that means jobs shed now will not be replaced with the same volume of jobs when the upswing comes, well, that's also in the long run a good thing that will give us competitive advantage. There's little comfort for the victims of structural unemployment whether they be bankers, shop staff or miners but the quicker that other sectors of the new AI-driven economy start pumping wealth and taxes into the Commonwealth of the UK, the quicker that the effects can be ameliorated. The trick is to stop the benefits of the AI revolution accumulating abroad whilst the costs are borne at home.

Sorry to be so unremittingly cheerful, but change really is opportunity ...

andrew said...

"This means less jobs, more automation."

so along with a bit more global warming and rising welfare demands we finally become

... France.

david morris said...


No reason for the UK to be spared Schumpeter's gale.

Part & parcel of the process of capitalism, innit ?

E-K said...

So the UK goes into recession in isolation.

Don't Remainers keep telling us we are not an island ?

Bill Quango MP said...

We are not an island. We are a coastal state.

Bill Quango MP said...

Our friends at Political Betting are drinking a lot of kool aid.

At the moment I’m not convinced enough to bet. The huge down-side of a no deal exit, the threats to food supplies, vital medicines and to whole industries that rely on easy access in and out of the continent mean that Johnson is going to be a brave man indeed because he will be seen as the one to blame.

The plans for mass slaughters British farm animals or the threat to food supplies would put a huge pressure on the PM no matter what Cummings is saying. The run up to October 31st could see panic buying and create chaos on a scale last seen during the 2000 fuel crisis when for a brief time Hague’s Tories led against Blair’s LAB in the polls.

CityUnslicker said...

Mike Smithson at PB has unfortunately also been diaganosed with advance stage brexit derangement. it is a secondary infection too, he was already suffering from yellow peril.

Sad news, such a lovely guy.

DJK said...

There are numerous real world examples of extreme trade disruption: e.g. the start of WW2 on British food imports from continental Europe, Ukraine going to (low level) war with Russia, etc. You know what? In all cases, life carries on. Trade patterns change and adapt --- perhaps quite drastically --- but people are still able to buy food, medicines, washing machines, whatever.

In Britain there are willing buyers, in the world outside of the EU there are willing sellers. Trade will adapt.

hovis said...

Funny just back from a client visit today, a tech manufacturer, mainland non EU Europe have the global function for sales/credit. They're seeing recession in their volume figures already. Refreshing as Brit to hear all their recession talk Brexit not once mentioned.

However bad a recession, politically everything was changed by 2008, no room to say no bailouts for X now.

andrew said...

Hovis, I suspect that the rules have not changed since the 80s(*)

Co based in the north or wales or scotland doing things where your hands get dirty
-no money for you

-how can we help

(* didn't say waht century)

E-K said...

DJK @ 7.08 the difference being this time that we are at war (albeit without guns) with the EU and (unprecedentedly) with their agents the majority in the UK establishment.

What percentage will be scorched earth ? We'll never know.

Anonymous said...

"(unprecedentedly) with their agents the majority in the UK establishment."

The situation was similar when we were withdrawing from the rule of the Pope in the 16th century.

Don Cox

iOpener said...

There are a lot of Brits quite prepared to take a financial loss for the sake of freedom from the oppressive, obnoxious, dishonest, corrupt and stupid rules and bureaucrats of the EU.

Good for them.

Anonymous said...

OT, but suppose you were videoing (on behalf of an intelligence service who'd arranged your billionaire lifestyle despite any visible source of said billions) the great and the good consorting with jailbait on your party island (not for anything as vulgar as blackmail, just to keep them aligned with your team), amd one day your friends in high places couldn't keep the law off you any more, and it looked as if the whole caboodle was going public - then a conspiracy theorist might reckon you were as good as dead.

Anonymous said...

Have to agree with DJK's analysis on the disruption that will be caused and the longer term i.e we've been there before.

...but will the BoJo legacy be rationing (of some form) and the UK mimicking the set up in Venezuela. People at the border wanting to leave. Food being flown in from the US. "How would you like your chlorinated chicken, sir?"

There need not be anything other than acceptance of what comes to pass on 31st October. And if you don't like it, Boris is creating 10,000 new places to accomodate you and your views.

That's what happens when you put the choice of PM/government in the hands of a select few.

Brexit yes. Shoehorned PM's chosen by a small club? Definitely not.

Anonymous said...

For the likes of iOpener, can we put the petulant and pouty claims of "doesn't matter puts us into recession, we're free" to the sword?

If Brexit can be proven/blamed (delete as applicable) to be economically disastrous then what do you think the consequences will be?

Do you think leaving the EU is some magic guarantee we never go back? Because if you do, you're a fucking walking candidate for a future Darwin Award.

Just as you can find a dearth of atheists in foxholes, you'll be finding a lot of reverse-ferreting over leaving the EU from people who ticked leave when they find it difficult to keep a roof over their head or feed their family.

And so some party will get voted in on the basis they'll take us back into the EU. And do you think the EU will just allow us to continue as before? Or will we have to go full into the EU project. Join the Euro, etc, etc. Going off the Brexit talks, how do you think they'll play it? Reckon they'll play nice? Anyone angling for this years Naive Twat Award?

Brexit *has* to be economically successful, or inside a decade get ready to kiss goodbye to GBP.

Once out, there'll be a period of grace, maybe 6 months, maybe 12 months, and by the end of that time most of the pain has to be gone out of the system, and enough pleasure to offset those months of pain.

Otherwise, go find one of those weird Japanese tentacle-rape animes to get an insight on what the EU will be doing to the UKs systems in a decade.

Anonymous said...

"people who ticked leave when they find it difficult to keep a roof over their head or feed their family"

Previous thread. Since 1997, real median male wages have fallen, only a few percent but a fall. Over same period housing costs up 140%. All inside the EU. People are finding a roof over their head hard to come by right now. House price falls please.

Your description of the EU as a group that's great to join, but if you ask to leave they'll f*** you up in major ways and do all they can to make life a misery, sounds like the description of an abusive spouse or a certain religion. You're a great advocate for Leave.

Suff said...

Anny 11.06
The BBC said his death was understandable as, like many, his fear of the consequences of Brexit, were making him very depressed.

Anonymous said...

@anon 1:44 - you know what *really* pisses me off? Those who think that anyone who utters anything other than optimism, plastered in more make up than an old tart, about leaving, must be a remainer.

I am a fucking leaver.

I'd like us to stay out. I know quite a lot of other leavers are under the assumption that the story ends with Nanny telling them "and so the UK left the EU and they all lived happily ever after", but some of us haven't regressed back to preschool levels of reality perception.

As for median wages having fallen, yes, but that tells us little. In terms of utility and the purchasing of Veblen goods though? Much different from the 70s. How many homes came with the at-the-time-equiavalents of washing machines, tumble dryers, dishwashers, large screen tellies, streaming services and a smartphones in 1975?

The problem is house prices. It's the one bit that hasn't seen much of a change in terms of technological disruption or advancement

E-K said...
This comment has been removed by the author.
E-K said...

Anon @ 7.23

I bought my boy (21 today) a super amplifier for his electric guitar. It was only £107 ! Multi effects built in, great sound, nicely built. I told him "WhenIwerealad my first amp was £80 THEN and it was shit. Just basic bass, treble and volume - and then I had to buy £500 worth of pedals to get half of what you have there... but at least I was able to buy a house in my twenties !"

He'll be MSc educated within a year - I only had 4 lousy O levels when I bought my first house and not much older.

I'm going to have to use my inheritance to give my boys their deposits and pay off their student debt - probably part of my pension lump sum too.

This was NOT in my plans.

People losing the roofs over their heads (well, never even getting roofs to put Veblen goods under in the first place, in fact) happened long before Brexit - nay CAUSED Brexit.

Having to be Bank of Mum and Dad when we were independent of our own parents by our early twenties comes as a shock and is what caused the older generation to vote Brexit.

The fall in living standards of the young (aka the generation divide) has been dramatic and shocking and has knocked on to us because of rising house prices which - by pure coincidence - took off around the time that John Major/Tony Blair threw open our borders towards the EU.

Another thing. The "Having to go into the full EU project" bit.

So what do you think would have happened if the 2016 result had been Remain ?

In the Darwinian scheme of things you are prey. You cannot see. You cannot see the absolute drop in living standards that has already taken place but is being covered by credit and house price inflation for those of middle class parents with no props at all for the children of the working class, unless they choose welfare as a lifestyle.

Anonymous said...

anon 7.23 - said you were a great advocate for Leave, never called you a remainer.

With respect, in 1975 a working male on median wage couldn't fly to Split for £29 (a week in Costa Brava perhaps), and he didn't have a 42 inch smart flatscreen.

On the other hand, he could afford to buy a house AND support a stay at home mum and children - something you have to be in the top 10% to do now.

I think that guy was a lot better off than his modern equivalent, even with only 3 channels on his 625 line telly.

Please don't bring up Veblen, I'd only just forgotten him and I don't want to start quoting Maslow at you, who you've just reminded me about.

An important point about these "V***** goods" - the only reason our 2019 guy can afford them is that they are made by people on low wages in the Far East. As we continue to not make anything and to ship manufacturing abroad, there'll come a time when

a) we won't make anything except bricks and double glazing and
b) sterling will have reached a realistic value for such a nation i.e. very low.

Our guy won't be buying smartphones then, he'll be diving in the harbour for coins thrown by Chinese tourists.

This flood of cheap goods is temporary, it won't last forever. Just as pensioners won't be the richest section of society forever, as they die off and are replaced by people without final salary pensions and who've been renting all their lives.

As you can see I'm not at all optimistic. The UK faces huge problems, most of which stem from the Thatcher years onwards, and they'd have those problems whether in or out.

I just think we'll be more able to do the things we will have to do, some of them tough, outside the EU. If they want to treat us like the rebel province of an empire rather than a sovereign nation that's their lookout.

Anonymous said...

@anon 11:09 - apologies then, I come across too much snark from those who see no further than leaving I guess.

I don't agree the working male in 1975 was better off, certainly he could afford a house, but stay-at-home mums were never going to last. The social changes during WW2 and after ensured that. A pint of milk was generally unavailable after 7PM, trips to the launderette were required. Today's daily routine required much greater planning.

As for manufacturing, we do still build things. Something like 25% of the economy is manufacturing, and quite a further chunk depends on it as the likes of the old on-site canteen has been outsourced. Volume of output from the 50 years from 1958 to 2008 actually doubled, it has dropped as a percentage as the economy has grown and diversified. Services are easier to set up, so unsurprisingly have grown much faster than manufacturing.

We also don't manufacture many of things we used to, no, but then we don't do subsistence farming or get children to sweep chimneys either. It's a progression.

Prices may increase in the future, but automation is going to keep down costs.

There are issues - look at cars, we were set up for diesels, which was a bad bet.

My own pessimism is more targeted at government. Economically the UK will keep ticking over.

Anonymous said...

@EK - why are you paying off their student debt? I get the house - as I said house prices are a major issue - but as %age of income, paying back student debt isn't the most onerous, although the interest rate is the very art of piss taking.

And the house pricing issue is purely one of supply/demand - it's not easy to build in the UK, and if you're importing tens of thousand into the UK they need somewhere to live. House prices and rents have rocketed accordingly, and the media won't mention it as it ties into immigration.

And please don't tell me about living standards, I'm from a council estate (a no-go area, when I grew up there no less!) in the "most deprived town in Britain." I can pop 20 minutes down the road and listen to people in wethys moaning about being unable to feed their kids, yet are able to smoke and drink easily enough. I had classmates die before I hit 16, and last I checked a good portion of my year are either pushing up daisies or have had long breaks away at the HMP holiday parks. Not exactly a Fauntleroy.

I see working class kids with smartphones, people trying to keep up with the Joneses. There is plenty of money about, it is not necessarily spent very well (I'm guilty of this too), and quite a lot it goes onto rent and mortgages. Again, house prices are the core issue.

Get around half again the supply of housing availability, via lower population or increased housing, and you'll see living standards shoot right back up.

Bricks are the sponge. Fix that and you won't need to be bank of Mum and Dad.

Going back to the subject of student debt, I got to see what toys modern unis have a few years back - much better than what I had in the early 90s. All paid for by grants. We could have done it via taxation instead, but I suspect many a comment on this blog in that alternate reality would feature a rant or four about that.

Shit costs. It either gets paid by the consumer, or socialised out in some manner.