Hooked on Credit

The UK CBI survey of retail sales by volume for September were released today, albeit that the data has a one month lag. First introduced in 1983, the reading shows short term trends within the UK retail and wholesale distribution sector and apparently helps with the formulation of economic policy at the Bank of England. Whereas the monthly survey provides an update on the volume of sales, orders and stocks, the quarterly survey, which is shown below, also tracks optimism, employment, prices and investment.

weekly_blog_130925_01

 

The figure exceeded consensus forecasts and the improvement has been building over the past six months or so. Furthermore, one can note a close correlation with UK GDP, shown as quarter on quarter above, hence tomorrow’s announcement of the final Q213 GDP number may just contain a pleasant surprise, over and above the initial release of 0.7%.

However, if we add to the chart UK consumer credit, we again note a close correlation between it and UK GDP plus retail sales. In other words, the use of credit remains an important issue when determining the likely trend for both UK retail and economic growth. Unfortunately credit doesn’t look as robust of late.

Socionomics states that a nation’s main stock-index is the best barometer of collective social mood and it is social mood which drives the propensity to take on credit or to reduce the use of it.

As such let us now introduce a second and final chart which overlays the FTA All Share Index, monthly data and shown as the black line below. UK GDP, this time annualized is shown as blue, left hand scale with consumer credit in green.

weekly_blog_130925_02

 

Kindly note how GDP peaked way back in the year 2000 and that, despite the increase of credit through to 2005, it didn’t stop the All Share from collapsing into 2003.

Following the ill conceived Bank of England QE action there has been a muted improvement in the use of credit and to GDP. However, the main beneficiary has been for speculators punting the UK stock-market.

We provide a final observation from that second chart. Just as the three dots lined up to signal the lows for the All Share, GDP and Credit use, the three dots have now lined up for the GDP high, the Credit high and possibly a Stock-Market high.

Withdrawal may prove to be an operative word.

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