Saturday, January 17, 2009

Interesting Latest UK Macroeconomics Statistics

(1) Real GDP. UK economy is slowing down markedly from its peak of 3.3% at Q3 of 2007. In Q2 of 2008, it registered 0% growth & Q3 is -0.6% growth for the first time. Recession is defined as 2 successive quarters of negative economic growth. Therefore, we can only officially declare UK economy in a recession state based on the Q4 data. But from inference, one can tell that Q4 economic growth will fall very sharply & thereby any chances of economic recovery in 2009 is remote

(2) Unemployment. The number of people out of job has increased dramatically up to 6% in October from 5.8%. This is the highest level seen after 1997 & it’s very worrying due to the potential contraction in consumption spending (de-multiplier effect). Number of people claiming Jobseekers Allowance also showed highest rise since March 1991. Unemployment often has lag changes in the economy. That’s one of my strongest arguments against any proponents that second half of 2009 will see any recovery

(3) Inflation. CPI had earlier rose significantly to 5.2% due to escalating world oil price. It peaked at 11th July at $147 dollar per barrel. First half of the year, inflation has captured the attention of economists. But with sharp contraction in economic activity due to credit crisis in the second half of 2008, had fuelled the fear of deflation which could spark tragedy of Great Depression in 1929 & in Japan in 1990s

(4) BOP. Surprising the BOP deficit widened during that period which contradicts any economic theory that in period of slowdown demand for imports will fall thereby reducing the deficit. The possible explanation for this is although demand has fallen, the export of UK services had fallen too at a larger rate

(5) Retail Sales. Retail sales increased momentarily in July largely due to summer holiday before went down. It increased slightly again, somewhere in November due to preparation for Christmas

(6) Investment. Business spending has suffered a free fall. It will not be surprising to see investment expenditure falls below 0% in the release of Q4 data. Although interest rates had gone down from its peak of 5.75% in September 2007, poor business confidence & unavailability of credit largely explained for this trend

(7) Government spending. Government borrowing has increased markedly & is expected to hit 40% UK’s GDP this year. However this is expected in the period of recession. Government has the responsibility to increase public investment & at same time reduce direct tax thereby widening

(8) Interest rates. The Bank of England has taken a drastic measure in the recent by cutting interest rates to 1.5%, the lowest level ever in the 315 years since it was founded in 1694.This show how desperate are policymakers in preventing the threat of deflation which may lead us to another Great Depression. This is also a far cry if we compare the interest rates to the period of 1979-80 when Margaret Thatcher came into power. That time, she was determined to combat inflation of 27%. As such, interest rates were raised to an extraordinary level. Also, during the late 1980s Lawson Boom, interest rates were raised to unprecedented level to tackle another inflationary threat & as part of effort to maintain the exchange rate of £2.95 to 1 DM

(9) House prices. Most of the UK people tend to store their wealth in property market. But due to the credit crunch issue, increasing number of homeowners finds great difficulty in securing loan from banks. This leads to fall in demand for housing which is followed by decrease in house prices. Collapsed in wealth leads to lower consumer confidence hurts UK economy which is mainly consumption-led

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