Tuesday, Jan 26, 2010
Amazing what a few trillion fails to achieve
BBC: UK economy emerges from recession
The UK economy has come out of recession, after figures showed the economy had grown by 0.1% in the last three months of 2009.The economy had previously contracted for six consecutive quarters - the longest period since quarterly figures were first recorded in 1955.
Posted by jack c @ 09:35 AM (3250 views) Add Comment
53 Comments
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1. ant said...
The difference between 0.1% growth and 0.1% contraction is only 0.2%. Technically this is a good news that the economy stopped contracting. Practically the growth of 0.1% is abysmal Therefore there is very little to cheer about.
But what may be ahead you can read on:
http://gregpytel.blogspot.com/2009/12/pyramid-collapse-is-about-to-resume.html
It makes you think.
2. ontheotherhand said...
They expected 0.4% growth and everyone was moaning lasst quarter that that estimate of -0.2% was wrong and would be revised up. Well it wasn't revised up. We have inflation and we have stagnation. Clearly house prices should jump on the news.
3. Neilb said...
0.1% wow
4. fallingbuzzard said...
Quite a surprise. It now won't be a surprise when £50bn more funny money comes out of thin air.
5. flashman said...
ontheotherhand @2: The initial estimates for the third quarter were actually revised upwards twice. The first estimate was for minus 0.4. They then revised it to minus 0.3 and then to minus 0.2. The first estimate only contains 40% of the data and they therefore tend to be conservative. The revision process can go on, for up to two years. Most people expect that the fourth quarter estimate will eventually be revised upwards to plus 0.3 or plus 0.4 and that the third quarter will probably be revised upwards to 0 or minus 0.1
6. happy mondays said...
To Emerge from recession, do we not have to all start borrowing again ? It's a CRAZY world...
7. cornishman said...
the old 0.1% is back...
8. bystander said...
0.1%. That's what I'm getting on my savings at the moment.
9. timmy t said...
0.1% growth - woohoo - if Simon Cowell left the country it would be negative again!
10. bystander said...
....bet they don't revise that up later. Eh, Flashman?
11. techieman said...
Flash - the boyz held cable @ 1.6150 for a while but its now slipped back to low 1.61s. The move to 1.6270 off the recent 1.6080 low is a 50% retrace - that now looks good (i actually thought that would be part of the retracement not all of it!). I cant see that this is good for sterling and personally am a bit surprised - i though the growth would be double what it came in at :-). But that was just based on a traders hunch.
Am really interested if your folks have moved their probabilities re the DD. I am sure there are some segments with lights at the end of the tunnel, some of which may even be on full beam.
12. Exiges said...
0.1% growth, that's with the scrappage scheme, christmas rush, and the VAT rush. Wonderful.
Predictions for next quarter then ? -0.3% ?
13. flashman said...
bystander: You should revise it up yourself. There are much better saving rates available.
14. d'oh said...
0.1% - just enough for them to claim that we are technically out of a recession (which is the news your average punter will hear), but not so large that the revised negative figure won't be "understandable." 0.4% would have been just too much to fiddle.
Another fraudulent, manipulated statistic in my opinion. I wait with bated breath to see where this figure ends up over the next year.
15. Davethebox said...
It's interesting to note that when they initially announced that we'd gone into recession, this was subsequently revised later on to say that we'd actually entered recession earlier than stated.
Do you think the same thing will happen here and they'll revise these figures in the future to say that we didn't actually exit recession until a few months later?
As D'oh at 12 says. The figures are manipulated just to be able to give a headline and keep the sheeple happy.
16. jack c said...
@bystander - have a look at Scottish Widows Bank - Internet Saver - currently 3.01% instant access on £1 upwards (rate includes 0.982% bonus for 12 months)
17. flashman said...
Hi techie: I hope that back injection worked?
The 0.1% estimate hasn't had much effect because no one puts much too much store in it. Like I said earlier they only have 40% of the data available for the first estimate. I also don't like all the mnessing about the ONS does with 'chain linking'. It was supposed to improve things but it actually makes it harder to compare data trends year to year. The old system was flawed but at least it was more stable and you knew what you were looking at.
Traders used the 0.1% estimate as an excuse to back off a bit because sterling has gone a bit too far/too fast recently. As you know, tomorrow’s movements will be more instructive
Attitudes don't seem to have changed much on the probability of a DD. The 60% probability that we won't (that sounds better than 40% that we will) enter a DD is actually not as informative as the consensus on the likely profile of a DD if we do have one (the consensus is that it will be mild and short lived). Taken as a whole the consensus for 2010 seems to be growth of about 1% which might allow for a short lived negative figure in one of the middle quarters. Most people seem to think that the final quarter of 2010 will be relatively 'barnstorming'.
18. it_is_going_with_a_bang said...
So it takes multiples of negative growth to get into a recession but 0.1% on one quater to get out of one?
I wonder if the 0.1% has been rounded up ! :-) and there is not a lot of room for errors there....
I welcome the idea of this country being out of recession - what i don't welcome is the idea that debt / borrowing must go up to sustain it.
19. techieman said...
Hey Jack, i have "amassed" a reasonable amount in cash ISA over the years, (no stocks and shares ISA obviously - shame you cant do a SIISA, rather than a SIPP - if you get me) anyway i had a year deal with bonuses blah blah and they are now paying some silly paultry amount. To be honest i was thinking of just leaving it there for a while, until i can get a more juicy (than now) one year fix.
With the increase in SVRs and the tightness of access to wholesale, do you see savings rates tending upwards? Sorry if i am trying to pick your brain!!! Its actually as much out of interest as anything else - the cash isa isnt that much anyway!
20. techieman said...
Flash re the injection - nope - seeing the consultant this afternoon - i am sure he will say surgery, since he already told me he doesnt do two injections. And i am equally sure i will say nope (well probably be more subtle than that and ask if i can see how it goes for 6 months - you know how some of them like to play "god" [that might get me into trouble!]). I am seeing a trigger point masseuse later this week, as ive read good reports (and no its not one of "those" massages.... although...).
Thanks for your answer re the DD. I hope you dont mind me asking that - and it would be interesting to see if that gets revised (up or down) going forward.
21. jack c said...
techieman - my view (personal and professional) is that rates will rise in the next 6 months or so and hence I have stuck with instant access accounts including instant access cash ISA's - whilst it is possible to pick up 5% I dont like the idea of tying up the money for this length of time and ultimately think a floating rate will work out better.
You could elect to transfer out to another provider on a floating rate (Standard Life Bank currently pay just under 3% and the service in my experience is excellent) and then pick up a more attractive fixed rate at a convenient later date.
(note the Greeks have just managed a sucessful Bond sale despite huge financial concerns but they are paying a premium !)
22. techieman said...
Jack - re the 1st para, thanks, i agree. You sound like you are saying a fixed rate cash ISA of up to 5%? With what the bank of Angola? Or is that a 200 year fix? :-).
As for your second paragraph to be honest, without sounding cocky, i just cant be bothered to do that transfer stuff for a 2% differential over the year. I can make / lose alot more than that if i sneeze at the right / wrong time! I suppose 5% would make it worthwhile. Looks like i'll just stick with what i have. In a way though thats playing into their hands.... right ? :-).
Re our conversation re FTSE the other day - i have liquidated most as overnight (night before last) it got slightly below the 5200 level. I actually think we will have a decent retracement soon - but am still holding some shorts "just in case". Overall though i do hope we have a bounce (perhaps after just breaching 5200 today) so that i can sell some more. I didnt really understand your point about American instruments you made the other day... care to enlighten me?
Flash - thanks for asking!
23. waitingtobuy said...
Bystander@7 Coventry BS does a postal acc @3.3% -£1000 min--4 withdrawals per year--easy access
24. jack c said...
techieman - ISA transfer rate with Leeds/Nationwide is approx 4.6% on 5 year term - The Banks/BS rely upon customer inertia and yes its playing into their hands. Thanks for the FTSE100 update - I have a feeling we will breach 5000 barrier this week. I placed a small amount in a collective (US opportunities) for potential capital growth but as you've probably deduced our timescales are massively different (5-10 yrs on this one for me - bit of retirement funding)
Hope all works out well with the recurring back problems.
25. matt_the_hat said...
They print 200,000,000,000 and get 000.1% the UK is finished - the experiment in buy now pay later has failed
26. bellwether said...
I apologise for expressing a view that is already embedded in the thread but the expansion, whether it is moved up or down, is meek set against a contraction of c 12% since begining of 2008 zero interest rates (more or less zero) since the begining of 2009, and a huge currency devaluation against our competitors.
It is not the 0.1% that worries me however but the thin conviction, that following the "global financial crisis" caused by those naughty bankers, we are now out the woods. With so much of GDP predicated on consumption and so much consumption predicated on debt and so little actual delevaraging having happened, and house prices still stubbornly high, recovery in any meaningful sense from here (whatever the Q1) seem highly improbable.
Sounding like a broken record I know.
27. Fraggle said...
Techie, if the SI in SIISA means self-invested, then they do exist. I have one with Interative Investors, and TDWaterhouse do one as well. I'm sure there are others. The one I have seems to be limited as to what you can invest in (and you don't know what's verboten until you try to buy it!), but within those limits, it's just like a regular account.
28. rumble said...
What Bellwether says... what's been fixed?
29. flashman said...
bellwether: Obviously the 'recovery' is weak and nothing to celebrate but I might have a slightly different perspective on gdp contraction and currency devaluation.
The total GDP contraction has been about 6% (not 12%) since the start of the recession in 2008. 6% is a heavy contraction but it has to be considered that this contraction was from a very frothy peak. Before the recession, we had enjoyed the longest ‘boom’ in modern history and in that context a 6% contraction is not too disastrous. Arbitrarily speaking, at least 3% of our GDP was ‘boom froth’ so it could be argued that we only lost about 3% from more regular activity. This ‘boom froth’ theory goes some way to explaining why unemployment is half a million less than in previous less severe recessions (we might have lost a couple of % points more from our GDP compared to other recessions but we started from a much more elevated position).
In a similar vein, I don’t think that our currency has, in real terms, suffered a massive devaluation. The Pound was widely believed to be massively overvalued before the recession (all sorts of inward investment and carry trade distortions) and I would say that it has now only returned to fair value. If I had returned from the moon after a few years and was told that the pound was worth about 160 cents, I would think that it was doing quite well. $1.5 to the pound always seemed about right for many years (in the last few decades the outlier exchange rates have been circa £1 to $1 and $2 to £1).
30. timmy t said...
Flash, your point @ 25 is true but this contraction was despite having the lowest interest rates in history and a mass of new money printed - neither of these happened last time. Also our debt situation, both public and private, will ensure that the recovery is a very slow and painful one, taking much longer than last time (I expect) to return to the previous high. Re the currency, agree on the $, far less sure about the euro.
31. rumble said...
"Before the recession, we had enjoyed the longest ‘boom’ in modern history"
...containing a lot of hot air - doesn't that hot air have to leave the system, leading to a descent?
32. flashman said...
timmy t: I didn't include the Euro because it has a much shorter history but a beer now costs about the same in France as it does here. We got very used to the luxury of paying less for things on our holidays but that was probably a symptom of an overvalued pound. Do you remember all those ads for importing cars from Belgium etc? I think it’s more likely that we’ve also returned to a fair value against the Euro but it is a young currency, so it’s hard to tell.
I agree with your comments on debt slowing the recovery. It will, indeed, act as a drag on GDP growth to the tune of about 0.5% per annum for the next four to six years. We will therefore only grow about 1% this year and circa 1% to 2% for the first part of this decade. Our debt burden will then be largely under control. The markets do not have nearly as dim a view of our debt, as do some of the population. Even the recent bond issuance from Greece was heavily over-subscribed. People should really consider the significance of this when claiming that the UK might suffer a bond strike or a downgrade. We are way better off than Greece.
Another important aspect to consider is the near certainty that our government will eventually make a killing on the bank bailouts. The taxes, fees and charges the government is extracting from the banks in payment/punishment are monumental and one day they will sell off the nationalised banks at a profit.
33. bellwether said...
Flash took my figures from the telegraph which I was reading when posted. Looks like they are wrong but doesn't fundementally change the message, which is we boomed on consumption and debt predicated on rising house prices.
I recall that spending via equity withdrawl never dropped much below £40billion pa from 2002 - 2007, and via the multipler produced very significant GDP figures. Rising house prices also created a wealth effect where people spent rather than saved where their house was doing the saving for them. Then there were the profits from all businesses connected to land and property speculattion from developers to banks to architects to lawyers to tradesmen and this is happening not just in the residential but the commercial arena, which is now choking on excess capacity and compressed rents.
The idea behind this was everyone was good for the debt except that wasn't true as we are only now begining to find out. We have had a fairly brutal recession but that is really before the deleveraging that must happen has begun.
Agreed on sterling it was way overvalued although what is fair value long term is impossible to say.
34. bellwether said...
Flash just read your comments to Timmy T, so to save you responding I think the difference is that the recession I have anticipated for many years ie as a result of debt saturation that has to be expunged, actually hasn't happened. Instead what we got was a financial crisis when everyone puked on realising how bad the debt problem was. Ok we have nationalised the problem but the debt problem isn't really to do with whp holds it but whether it can creadibly be paid off.
My view is we are less able to pay off now, than before the financial crisis, and my long awaited compromised consumption deleveraging recession has yet to begin.
Just my view. Time will tell.
35. bystander said...
Thanks Jack-c. I will check it out.
36. greenshootsandleaves said...
it is going with a bang @ 15: 'So it takes multiples of negative growth to get into a recession but 0.1% on one quarter to get out of one?'
Yes and no or rather no and yes. I have a feeling, though, that bookmakers will give you much shorter odds on '+0.1' (also known as 'There, made it!') than on '-0.1' (aka 'We need to look at these figures again').
In much the same vein you also have yer two types of zero: (-)0, sometimes spotted going into a recession, and the extremely rare (+)0 . The sign is of course hidden from public view.
37. timmy t said...
Flash - I think personal debt is as big an issue as public for us. If you reckon that for the last 10 years Mr average has earned 20K and lived in a house which is appreciating at 15K per annum on top, and has MEW'd and spent a pretty significant proportion of that additional "income" which is now no longer available, our collective ability to spend has diminished considerably. The additional tax burden required to repay the public debt is relatively small in comparison, in terms of people's disposable income.
38. mountain goat said...
Flashman - glad you are still defending a more bullish case then most of us here have with your usual clarity. In terms of gov bonds @32 not sure if you have seen PIMCO's Bill Gross' latest comments? "The UK is a must to avoid. Its Gilts are resting on a bed of nitroglycerine."
FT Alphaville Blog
Not that I particularly follow Bill Gross and being an investor one has to have the usual caution of people talking their book. But I would be interesting to understand on what foundation he bases his bearishness.
Gross - "The UK is a must to avoid. Its Gilts are resting on a bed of nitroglycerine. High debt with the potential to devalue its currency present high risks for bond investors. In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 1/2 % and lower."
Commentary by Marc Ostwald of Monument Securities - "He could have been a lot more explicit in his rationale. I think what he is trying to say is that the whole QE process, i.e. the BoE indirectly buying £200 Bn of this fiscal year’s £228Bln of Gilt issuance is a rather dodgy bit of accounting (i.e. it is not far from the under-funding of the budget that occurred in the 1970s) , and on top of the regulatory (actuarial) pressure on pension funds to buy long-dated Index-linked Gilts has created very artificially priced Gilt and Index Gilt yield curves."
39. flashman said...
Hello mountain goat
Bill Gross is trying to talk up the yield. The clue is in the colourful language. No serious note would contain the words "bed of nitroglycerine". He is hamming it up. The guy buys bonds for a living and it is very much in his interest for the issuers to pay a larger coupon. He is very frustrated at the moment because even the spreads in Greece have just tightened. I mentioned earlier that the recent Greek issue was heavily oversubscribed which of course means Bill Gross and competitors were queuing up to buy even the Greek crap. Actions speak louder than words and if they oversubscribed the Greek crap, then 'they' would walk over broken glass to buy UK bonds. He is very resentful that the yields are so low and wishes that he had more bargaining power. For months, he has been spouting on about buying bonds from China, Brazil and India. He usually claims that they are less prone to instability etc which is utter bollo*ks. Brazil has a history of default and China is a totalitarian state with little respect for foreign corporations. India is a total chaos at the best of times. His pals will be first in line at every UK issuance this year but he'll still sing the same song to force a higher yield
40. flashman said...
timmy t: good point re private debt. Somehow, for the time being, the public is still spending. I just saw the latest retail figures from Greater London, which can only be described as stellar. All sorts of spending records were broken. We will have to wait for the April tax increases to see what the future holds. future interest rates will also matter. There is no doubt that it could tip either way
Most people don't realise that the vast majority of personal debt in this country is in the form of mortgages. This is important because many economists see mortgage payments as a form of savings (the mortgage will eventually be paid off). Most mortgage debt holders also have a large amount of equity to offset against the debt, which of course means that most mortgages will not cause a loss to the lender even if there is a default. The situation was quite different in the US where there was often nothing to set against the debt and laws made it easy for people to walk away without the debt following them around
.
41. mountain goat said...
Thanks for your take Flashman. The Greek auction did surprise. Doesn't suffer from the "potential to devalue its currency" risk Gross cites for the UK though. But that is assuming Greece stays in the Euro club.
I do genuinely enjoy hearing a positive view on the UK. I hope there is still strength in the bulldog.
42. flashman said...
mg: I have to say that my view is not particularly bullish in the scheme of things. I see a Britain limping on for half a decade with below trend growth (below trend growth is, in effect, contraction). I also see house prices falling a bit more. I don't however see any chance of a currency collapse or hyperinflation/severe deflation
43. smugdog said...
Out of recession? I thought that we would all be patting each other on the
backs and looking forward to a good year ahead.
(Although, 09 was an exceptionally good year for our team, all things considered).
Come out of the darkness chaps, it's not really good for the mind and soul in there.
Positivity generates positivity. Come onboard why don’t you?
44. rumble said...
Smug, not everyone wants to be a property "investor". Until the situation corrects, the year ahead is not good for people who simply want to be rid of their landlords, get maybe a size 11 shoebox instead of a size 8, etc Housing is not for investment, it got caught up in derivatives.
45. flashman said...
hello smugs: 2009 was a corker for us too. I was chuffed about it, until I found out that it was all down to the Norman conquest (an absolute HPC side-splitter). There's an Indian chap in our village who owns 12 restaurants and 5 petrol stations. He thanks William the Conq. every day for giving him his wedge. Perhaps your team should be a bit more grateful for 1066?
46. rumble said...
2009 - hard work.
47. krustyatemyhamster said...
Sockpuppet
48. bellwether said...
Smugdog you are an awful ham.
49. bellwether said...
Also Smug can we also stop please talking up your own situation, and when you're at it spare us the Susan Jeffers pop psychology.
2009 was a stellar year for my legal firm (I mean the legal firm I own), and 2010 looks to be better going on current figures and works flow. Then again, totally beside the point.
50. smugdog said...
A good few on this site have a keen eye and an extremely balance view,
for which I thank in helping me make decisive and important decisions
Many others have become bitter and twisted doom mongers.
I wish I could share your pain, but I choose not.
You remain very entertaining though.
51. rumble said...
Decisive decisions... oh brother...
52. markj69 str05 said...
@50.. Entertaining - As do you smugdog! And a great many would normally wish to share your optimism. But alas, we do not, and can not. External artificial influences will soon no longer play a part in this, and then the truth will out.
53. techieman said...
Fraggle - sorry that was my idea of a joke! Effectively i invest all i want in a "SIISA" because i use the spread betting firms. (so everything is tax free). Thanks though for the input.