Bull and bear: State of the economy - The Share Centre Blog

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Michael Baxter

Bull and bear: State of the economy

Written by: Michael Baxter on January 6th 2014

Category: Bull & Bear, News

Now that we are a few days into 2014, it is possible to start considering what the economy was like at the end of 2013. Today’s Bull and Bear is a snapshot of the economy in 2013. You may find it a good reference guide, and as 2014 marches on, it may be worth referring back to this from time to time, just to see how things have changed. This article will also be updated from time to time, as new data relating to 2013 is released.


Q1 Q2 Q3 Q4
Quarter on quarter growth 0.5 0.8 0.8  -
Year on year growth 0.7 2.0 1.9  -
Exports (Q/Q) -0.2 3.3 -3.0  -
Imports (Q/Q -1.7 2.5 0.7  -
Capital formation 0.7 1.7 1.5  -
Household spending (Q/Q 0.7 0.3 0.7  -
Capital formation (Q/Q) 0.7 1.7 1.5  -
Stock building -0.5 -0.1 1.0  -
Domestic Demand 0.0 0.6 1.9  -
Savings ratio 3.6 6.2 5.4  -


Key points: in Q3 real incomes rose by 0.4 per cent quarter on quarter, but since domestic demand rose by 1.9 per cent, we know that the rise in household spending and domestic demand was partly fuelled by a fall in savings. The rise in stock building also helped to create growth, which is not sustainable, and the contraction in exports is worrisome. Can 2014 see more growth coming from investment?

savings ratio


UK versus others

Quarter on quarter growth in Q3, source ONS
UK 0.8
US 0.9
Euro area 0.1
EU 28 0.2
Japan 0.3


Inflation was 2.1 per cent in November, just 0.1 percentage points above the Bank of England’s target. It is expected to fall further in 2014. This is why predictions that interest rates will rise in 2014 are, from an inflation point of view, odd. It will be strange indeed if 2014 sees inflation fall below 2 per cent for the first time since 2009, and interest rates also go up.


Remember, 12 months of data form the annual inflation figures. So when month on month inflation jumps, it takes 12 months for this effect to fall out of the headline inflation rate.

Month on month inflation
November 2012 0.2
December 2012 0.5
January 2013 -0.5
February 2013 0.7
March 2013 0.3
April 2013 0.2
May 2013 0.2
June 2013 -0.2
July 2013 0.0
August 2013 0.4
September 2013 0.4
October 2013 0.1
November 2013 0.1
December 2013


Assuming month on month inflation averages around 0.2 per cent, the headline rate should be at its lowest level in April 2014, and may rise during the summer of 2014.

Jobs market

UK unemployment was 7.4 per cent in the three months to October, the lowest level since April 2009, or 2.39 million. During the period unemployment fell by 99,000 compared to the previous three month period. This was the biggest fall since 2000. Experimental monthly data showed that in October unemployment was 7.0 per cent. That Bank of England has said that rates won’t rise until unemployment falls to 7.0 per cent at the very least, although it did say that even if unemployment falls to this level, this does not mean rates will automatically rise.

Employment during the period rose 250,000 to 30.09 million, up 485,000 from a year ago.

Although the jobs stats look encouraging, expect to see more focus on the level of underemployment in 2014 (that is to say people who are working, but not as many hours as they would like, for example those who are on zero hours contracts).

Average wages rose 0.9 per cent during the period, and regular pay (that’s without bonuses) rose 0.8 per cent.



On an output per hour basis, UK labour productivity decreased by 0.3% in the third quarter of 2013 but output per worker rose slightly. Market sector output per hour decreased by 0.1% over this period.




Public debt

Public sector net borrowing (PSNB) totalled £16.5 billion in November, £0.9 billion higher than in November last year and above market expectations of £15.0 billion. Central government receipts came in £1.8 billion higher than in November last year, whilst spending was £0.2 billion lower. Local Authority borrowing was £3.1 billion higher.

The Office for Budget Responsibility said: “Our December forecast implies that PSNB in the remaining four months of the year will be £1.8 billion lower than in the same period last year.”

Housing market

UK house prices figures in per cent
  Monthly Annual Comment
Nationwide (December) 1.4 8.4 Nationwide said: “Part of the reason for the acceleration in house price growth is that the supply side of the market has not kept pace with the upturn in demand, even though buyer numbers remain subdued by historic standards.  For example, in Q3 2013 the number of housing transactions in England was around 25% below pre-crisis levels, while the number of new homes built was around 45% lower. Moreover, even in the pre-crisis period, the pace of construction was below that required to keep pace with the increase in the number of households, adding further weight to the notion that the supply side of the market remains constrained.”


Hometrack(November) 0.5   Hometrack said: “The major change in the last 12 months has been a shift from falling house prices in regions outside London to prices rising steadily off a low base as demand picks up. Much of the house price growth outside London remains muted and far from what could be described as a ‘housing bubble’.  Help to Buy has delivered a confidence boost the market. The impact of the new build part of the scheme on general house prices is limited as it supports less than 3% of all sales. The impact of the mortgage indemnity part of the scheme could well fall short of expectations given the higher cost of these mortgages.” 


Halifax (November) 2.1 7.7 Lloyds said: “Stronger demand, combined with an insufficient increase in housing supply, has resulted in increases in house prices accompanying higher activity this year. Low interest rates, improvements in consumer confidence and official schemes, such as Funding for Lending and Help to Buy, all appear to have boosted demand. However, continuing pressures on household finances, as earnings fail to keep pace with consumer price inflation, are expected to remain a constraint on the rate of growth of house prices. We are also seeing signs of a revival in house building, which should help bring supply and demand into better balance and curb upward pressure on prices over the medium and longer terms.” 


ONS (October)   5.5  
UK Residential Market Survey Headline index 59, 59 per cent more chartered surveyors across the country predict prices to continue their upward trend rather than fall back over the coming three months. This is the highest reading since September 1999 and demonstrates the impact that the recovery in demand allied with anaemic supply is having on the housing market.




High Street

Retail sales were up 2.7 per cent year on year, and by 0.3 per cent month on month. The monthly increase was the largest since November 2010.

However, the ONS said: “The underlying pattern in the data as suggested by the three month on three month movement remains flat due to a contraction in the quantity bought in food stores and petrol stations offsetting growth in non-food stores and non-store retailing.”

The latest distributive trades survey from the CBI, published on 18 December and covering 27th November and 11th December 2013, found as follows: 48 per cent of respondents reported that sales were up on a year ago, while 14 per cent said they were down, giving a balance of +34 per cent, which was above expectations (+24 per cent).


Purchasing Managers’ Indices produced by Markit and CIPs in the UK provide good forward indicators. Any score over 50 is said to be consistent with growth, while below is consistent with contraction.

The Manufacturing PMI was 57.3 in December, which was slightly less than November’s reading of 58.1, but the index had hit a 33 month high in November.

Markit/CIPS Construction PMI surged from 59.4 in October to 62.6 in November, which was its highest since August 2007. The index for December fell very slightly to 62.1.

The headline Business Activity Index tracking services registered a level of 58.8. That was down from 60.0 in November and was a six-month low. Markit said, however that this still “signalled a historically strong rate of expansion.”

The all sector PMI was 59.5, which was down on both October and November, but still very high by historical standards.

Markit said: “Historical comparisons of the PMI against official data indicate that the survey data are consistent with the economy growing by 1.0% in the final quarter of the year, up from 0.8% in each of the previous two quarters. If the buoyancy of the survey data in the fourth quarter is borne out by the official data, the economy will have grown by 1.9% over the course of 2013 – the strongest pace of expansion since 2007.”


According to Capita Registrars, Q3 dividends were £25.3bn, up by a headline 5.7 per cent year on year.

Its forecast for 2013 has been cut by £1.7bn to headline £79.7bn. Capita forecasts that dividends in 2014 will be £101.8bn, an increase of 27.8 per cent.

Top dividend payers were Vodafone, Royal Dutch Shell, HSBC, BP, BT, GSK, Tesco, National Grid, BAT, and SSE.


End of year
FTSE 100 6,749.67
DOW 16,576.66
Dax 9,552.16
Nikkei 250 16,291.31
Hang Seng 23,306.39
Gold 98.59
Oil (Sweet crude) 1,202
Euros/pound 1.2027
Dollars/pound 1.6564
Yield on ten year UK government bonds 3.03


These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: UK economy 2013

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