Growth Pains

The wonderful website investopedia defines GDP as, “ the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

It goes on to say, “GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country’s standard of living and serves as a measure of a nation’s productivity.”

UK economic growth for the third quarter of this year, aka provisional Q313 GDP, was released earlier today and for once the consensus (a survey of a herd of economists) were bang on with the 0.8% forecast for the quarter and for 1.5% year on year. So let’s look at the health of the UK.

weekly_blog_131127_01

 

On first sight it’s a relief to see that it’s a third consecutive quarter of rising growth, as noted by the black bar of the histogram, albeit that after £375 BN of QE stimulus you would hope for some “bang for your buck.”

The newswires jumped onto the positives of increased consumer spending and business investment, itself a good thing, but the country’s main stock-index, the FTSE 100, immediately sold off on the news, suggesting that a look under the bonnet of those GDP figures may be prudent.

Immediately we can see that whilst business investment has indeed shown a pulse during the past quarter, it is still trending lower (see red arrow.) Furthermore, so are exports, which any Nation and particularly an island Nation needs to increase.

So what’s driving growth, lacklustre that it is?

Consumer spending rose by 0.8 percent, an eighth consecutive quarterly increase whilst investment in private-sector dwellings jumped 5.9 percent in the quarter, the most in two years, according to the Office for National Statistics.

The trouble is that most of this “economic growth” is being achieved by adding even more debt onto the private sector, as set out in our “Gilt-Edged ” missive of last week.

We make no apologies in repeating an updated chart and the final paragraph from last week, which showed the UK 10-year gilt yield, now including a 200-day moving average, shown in blue, because it is SOooooo important.

weekly_blog_131127_02

 

Having doubled within a short 14 month time-frame, interest rates now look set to spike ever higher which creates a bit of a problem for UK plc as it services its mountain of debt, including not just the government (or should we say the tax-payer) but the rafter of mortgage holders whose monthly cash-flow is starting to be squeezed hard.

Not good for consumption nor for selling houses to each other, when it’s all dependent on continued low interest rates..

Bottom line,“the patient shows signs of a pulse, but don’t hold your breath.”.

 

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