The State of Britain

UK

The economies of the devolved nations and London contract the quickest and UK debt exceeds 2 trillion for the first time

Reading Time: 3 minutes

A nowcast for the UK ‘regions’ for the 12 months ended June 2020 on a rolling 4 quarter basis has been published by the Economic Statistic Centre of Excellence (‘ESCoE’).

Over the period the East Midlands was ‘best’ with a fall of 4.5%, with London’s contraction the ‘worst’ at 7.4%; the UK’s decline according to the Office for National Statistics (‘ONS’) figures was 5.3%. Wales contracted by 6.8%, Northern Ireland fell by 6.7% and Scotland declined by 6.1%

ESCoE is a partnership of research institutions and the ONS and has highlighted that during these unprecedented times, there is no historical data that their model can use to fully understand how the pandemic will impact regional economies. Consequently the partnership emphasises the uncertainties that exist with their nowcast at this time.

ONS GDP to December 2019

Official ONS figures for six months earlier, the year to December 2019, which reflects Brexit uncertainty rather than Covid 19 turmoil, show London again topping the table with growth of 5% whilst UK growth over the same period was 0.9%. The West Midlands was again the worst performer and contracted by 2.7%. The North East, Wales, East Midlands and the North West were the other ‘regions’ in the UK to suffer a decline.

In the same report, the ONS’s figures highlighted that the South West of England was top with quarterly growth of 0.8% whilst the North East was bottom, posting a drop of 1.3%.

UK stats

UK GDP fell by 20.4% in the three months to June 2020 although GDP grew by 8.7% in June itself. Over the quarter, services were down by 19.9% (Q1 -2.3%), construction fell by 35% (Q1 -1.7%) and production was down by 16.9% (Q1 -1.5%).  

Household consumption fell by 23.1%, the biggest drop on record. Annually GDP fell by 21.7% which took the size of the economy back to 2003.

According to Eurostat, GDP fell by 12.1% in the euro area and by 11.7% in the EU27 during the second quarter of 2020. This meant that annually GDP fell by 15% in the euro area and by 14.1% in the EU27.

Key European economies came out of lockdown earlier than the UK and are recovering more quickly. Over the quarter the data showed that the German economy fell by 10.1%, France contracted by 13.8%, with Italy shrinking by 12.4%. Annually, Germany contracted by 11.7% and France by 19% with a 17.3% decline recorded in Italy. The Swedish economy contracted by 8.6% over the quarter which meant an annual contraction of 8.6%.

The UK labour market, supported by the Job Retention Scheme, does not yet reflect lockdown and was largely unchanged, with the level of employment falling by 220,000 to 32.92m and the level of unemployment stable at 1.34m or 3.9%.

Vacancies are showing increases in the latest period, driven by smaller businesses, some of which are reporting taking on additional staff to meet COVID-19 guidelines, but the Claimant Count reached 2.7m in July 2020, an increase of 116.8% since March 2020.

The euro area unemployment rate was 7.8% in June 2020, with the EU27 rate at 7.1%. The lowest unemployment rate in June 2020 was 2.6% in the Czech Republic and the highest was 15.6% in Spain.

UK inflation was 1% in July 2020 up from 0.6% in June. Key upward contributions came clothing, rising prices at the petrol pump, and furniture and household goods.

Euro area annual inflation was 0.4% in July, down from 0.3% in June. European Union annual inflation was 0.9% in July 2020, up from 0.8% in June. A year earlier, the Euro area rate was 1%.

The UK public sector deficit in July was £26.7bn, £28.3bn more than in July 2019, the fourth highest borrowing in any month on record (records began in 1993). Debt at the end of July 2020 was £2,004bn which was 100.5% of GDP, an increase of £227.6bn or 20.4% on July 2019; this is the first time debt has exceeded £2 trillion. 

UK GDP biggest drop ever and debt just short of 2 trillion as the furlough scheme constrains unemployment; average incomes in Kensington over £50K more than in Nottingham

Reading Time: 3 minutes

This month the ONS published regional household disposal income figures for 2018. Total gross disposable household income (GDHI) in the UK in 2018 was £1.4bn. Of that, 86.3% was in England, 7.6% was in Scotland, 3.8% was in Wales and 2.3% was in Northern Ireland.

The average UK income per head after direct and indirect taxes were taken off was £21,109.  England was the only country above the UK average at £21,609 but growth in incomes was best in Scotland and Northern Ireland at 5.1% and 4.7%. England’s growth was the same as the UK at 4.6%; Wales grew by 4.4%.

At a regional level, London had the highest GDHI per head where, on average, each person had £29,362 available to spend or save; the North East had the lowest at £16,995 which compares with a UK average of £21,109.

At a local level, Kensington and Chelsea and Hammersmith and Fulham had the highest GDHI per head at £63,286 with Nottingham the lowest at £13,138. All the top 10 local areas were in London or the South East with the bottom 10 within the North West, Yorkshire and The Humber, East Midlands, West Midlands, and Northern Ireland regions.

In terms of regional GDHI growth, the largest increase was in London at 5.2% with the smallest in the East Midlands at 3.6%.

At a local level, Kensington & Chelsea and Hammersmith & Fulham was best again in the UK with growth of 7.6% whereas Luton was the worst and only grew by 0.9%.

Separate data on earnings showed London had the highest average of £847 and the lowest average of £537 was recorded in Northern Ireland. Earnings in the NE increased the most in the UK by £60 per week whereas the biggest drop in wages was £37 in Scotland.

UK stats

The UK public sector deficit in May was £55.2bn, £49.6n more than in May 2019, the highest borrowing in any month since records began. Debt at the end of May 2020 was £1,950bn which was 100.9% of GDP, an increase of £173bn or 20.5% on May 2019; the largest year-on-year increase in debt as a percentage of GDP since monthly records began in March 1993. This is the first time that debt as a percentage of GDP has exceeded 100% since the financial year ending March 1963.

UK GDP fell by 10.4% in the three months to April 2020 with GDP declining by 20.4% in April itself. Over the quarter, services were down by 9.9% construction fell by 18.2% and production was down by 9.5%.  Year on year the contraction was 1.7%.

The drop in GDP is the biggest the UK has ever seen, more than three times larger than in March and almost ten times larger than the steepest pre-covid-19 fall. In April the economy was c25% smaller than in February.

According to Eurostat, GDP fell by 3.6% in the euro area and by 3.2% in the EU27 during the first quarter of 2020. This meant that annually GDP fell by 3.1% in the euro area and by 2.6% in the EU27.

Key European economies are now feeling the effects of the April shutdown, with the shocking data now flowing through. Over the quarter the data showed that the German economy fell by 2.2%, France contracted by 5.3%, with Italy also shrinking by 5.3%. Annually, Germany contracted by 2.3% and France by 5.0% with a 5.4% decline recorded in Italy. The Swedish economy contracted by 0.1% over the quarter which meant annual growth was +0.4%.

Due to the furlough scheme. the UK labour market was largely unchanged in May, with the level of employment stable at 32.99m and the level of unemployment similar at 1.33m or 3.9%.

The effects of lockdown though can be seen in the vacancies figure. There were an estimated 476,000 vacancies in the UK in March to May 2020; this is 342,000 fewer than the previous quarter and 365,000 fewer than a year earlier.

The euro area unemployment rate was 7.4% in May 2020, with the EU27 rate at 6.7%. The lowest unemployment rate in May 2020 was 2.4% in the Czech Republic and the highest was 14.5% in Spain.

UK inflation was 0.5% in May 2020 down from 0.8% in April. Key downward contributions came from motor fuel with the biggest risers being food and non-alcoholic drinks.

Euro area annual inflation was 0.1% in May, down from 0.3% in April. European Union annual inflation was 0.6% in May 2020, down from 0.7% in April. A year earlier, the Euro area rate was 1.6%.

 

The economies of the devolved nations and London contract the quickest and the UK piles up debt at the fastest rate since records began in 1984

Reading Time: 3 minutes

A quarterly nowcast published by the Economic Statistic Centre of Excellence (‘ESCoE’) for the 3 months ended March 2020, which captures the start of lockdown, has estimated that the contractions in the UK ‘regional’ economies ranged from -1% in the East Midlands to -3.9% in Northern Ireland; the UK decline was 2%.

On these estimates, of the 12 UK ‘ regions’ the three devolved nations fared worse than the national average as did UK powerhouse London which declined by 2.2%.

For the 12 months ended March 2020 on a rolling 4 quarter basis, ESCoE has estimated that growth in London (ranked first) was 1.8% and growth in the East Midlands (ranked twelfth) was -0.6%; over the same period UK growth was 0.5%.

ONS GDP to September 2019

Official ONS figures for six months earlier, the year to September 2019, which reflects Brexit uncertainty rather than Covid 19 turmoil, show London again topping the table with growth of 5% whilst UK growth over the same period was 1.2%. The West Midlands was the worst performer and contracted by 1.5% with the East of England and the North West of England the other two ‘regions’ in the UK to suffer a decline.

In the same report, the ONS’s figures also highlighted that London was top over the quarter to 2019, with growth of 1.4%. This compared with the North West, Northern Ireland and the South East contracting by 0.2% with the East Midlands posting a drop of 0.3%.

UK stats

UK GDP fell by 2% in the three months to March 2020 with GDP declining by 5.8% in March itself. Over the quarter, services were down by 1.9% (March -6.2%), construction fell by 2.1% (March -5.9%) and production was down by 2.1% (March -4.2%).  

Also household consumption fell by 1.7%, the biggest drop since December 2008. Annual growth was -1.6%, the biggest fall since Quarter 4 2009, when it also fell by 1.6%.

According to Eurostat, GDP fell by 3.8% in the euro area and by 3.3% in the EU27 during the first quarter of 2020. This meant that annually GDP fell by 3.2% in the euro area and by 2.6% in the EU27.

Key European economies are now feeling the effects of the March shutdown, with the shocking data now flowing through. Over the quarter the data showed that the German economy fell by 2.2%, France contracted by 5.8%, with Italy shrinking by 4.7%. Annually, Germany contracted by 2.3% and France by 5.4% with a 4.8% decline recorded in Italy. The Swedish economy contracted by 0.3% over the quarter which meant annual growth was +0.5%.

The UK labour market data does not yet reflect lockdown and was largely unchanged, with the pre-pandemic level of employment increasing to a joint record high of 33.14m and the level of unemployment stable at 1.35m or 3.9%.

The effects of lockdown though can be seen in the vacancies figure. There were an estimated 637,000 vacancies in the UK in February to April 2020; this is 170,000 fewer than the previous quarter and 210,000 fewer than a year earlier.

The euro area unemployment rate was 7.4% in March 2020, with the EU27 rate at 6.6%. The lowest unemployment rate in March 2020 was 2% in the Czech Republic and the highest was 16.4% in Greece.

UK inflation was 0.8% in April 2020 down from 1.5% in March. Key downward contributions came from transport (includes fuel) with the biggest risers being recreational goods.

Euro area annual inflation was 0.3% in April, down from 0.7% in March. European Union annual inflation was 0.7% in April 2020, down from 1.2% in March. A year earlier, the Euro area rate was 1.7%.

The UK public sector deficit in April was £63.5bn, £73.3bn more than in April 2019, the highest cash requirement in any month since records began in April 1984. Debt at the end of April 2020 was £1,888bn which was 97.7% of GDP, an increase of £118bn or 17.4% on April 2019; the largest year-on-year increase in debt as a percentage of GDP since monthly records began in March 1993.

Pre-pandemic data shows increased exports help Scotland and Northern Ireland record trade surpluses; the SE remains the leading regional exporter but London the best performer

Reading Time: 3 minutes

HMRC has published the latest regional trade figures which show exports and imports for 2019. Given the time period this data reflects Brexit uncertainty rather than Covid 19 turmoil. 

In the year to December 2019, the overall value of UK trade in goods exports increased by 2.1% to £346bn compared with the same period in 2018. The overall value of imports increased by 0.3% to £483bn.

The largest regional exporter remained the SE of England with £46bn of goods exported with Northern Ireland the smallest at £9bn. The best performer in percentage terms was London which was up by 17.2% with Yorkshire & The Humber falling by 6.3%.

The leading regional importer of goods was the SE of England at £98bn with Northern Ireland the smallest at £8bn.

Scotland and Northern Ireland had trading surpluses in goods of c£10bn and c£1bn; the other UK ‘regions’ all had deficits.

Services                   

This month the ONS published data on regional services imports for 2017. The largest component of services imported into the UK was £51bn of travel. This represented 28% of the £181bn of services the UK imported.

The leading regional importer of services was London at £60bn with Northern Ireland importing £1.6bn.

At a local level, the largest importer of non-travel services into the UK was Camden and City of London at £14.5bn, almost double the next largest importer which was Westminster at £7.9bn. Of the 167 local areas, the Western Isles of Scotland imported the least amount, £21m, with Anglesey next at £31m.

The data on services exports was released by the ONS last year which showed London exported the most services at £117bn which compared with Northern Ireland at £2.9bn.

UK stats

UK GDP grew by 0.1% in the three months to February 2020 but GDP declined by 0.1% in February itself. Over the quarter, services were up by 0.2% but construction fell by 0.2% and production was down by 0.6%.  Annual growth was 1.1%.

According to Eurostat, GDP fell by 3.8% in the euro area and by 3.5% in the EU27 during the first quarter of 2019. This meant that annually GDP fell by 3.3% in the euro area and by 2.7% in the EU27.

Key European economies have begun to feel the effects of the March shutdown, with the timing of the dire data varying. For example, over the quarter the data showed that pre-pandemic Germany was at a standstill but France contracted by 5.8% with Italy shrinking by 4.7%. Annually, pre-pandemic Germany grew by 0.4% but France fell 5.4% with a 4.8% decline recorded in Italy. France and Italy are already in recession due to their contractions in the previous quarter.

The UK labour market was largely unchanged, with the pre-pandemic level of employment increasing to a record high of 33m and the level of unemployment stable at 1.36m or 4%.

The euro area unemployment rate was 7.4% in March 2020, with the EU27 rate at 6.6%. The lowest unemployment rate in March 2020 was 2% in the Czech Republic and the highest was 16.3% in Greece.

UK inflation was 1.5% in March 2020 down from 1.7% in February. Key downward contributions came from motor fuels and clothing with the biggest risers being housing, water, electricity and gas.

Euro area annual inflation was 0.7% in March, down from 1.2% in February. European Union annual inflation was 1.2% in March 2020, down from 1.6% in February. A year earlier, the Euro area rate was 1.4%.

The UK public sector deficit in March was £3.1bn, £3.9bn more than in March 2019. Debt at the end of March 2020 was £1,804bn, which was 79.7% of GDP, a decrease of 1% on March 2019.

Thames Valley Berkshire LEP the most productive but the best productivity growth in Coventry and Warwickshire, the East Midlands has the wealthiest and poorest parts of the UK

Reading Time: 3 minutes

ONS figures last month demonstrated that high levels of hours worked and high productivity in London and the South East pulled up the UK average so much that the other ten ‘regions’ of the UK fell below it.

The ONS has now released data for a longer period and at a subregional level.

Perhaps the most useful is the 2018 results for the 44 enterprise regions in the UK which comprise the 38 English local enterprise partnerships (LEPs) and six enterprise regions in Scotland, Wales and the border regions.

Thames Valley Berkshire LEP had the best productivity (in terms of hours and jobs) in 2018 at 35% above the UK average whereas the Black Country LEP at 24% below was the worst. Labour productivity increased in 32 out of 44 enterprise regions in the UK between 2010 and 2018.

In terms of productivity growth between 2010 and 2018 the Coventry and Warwickshire LEP was top with growth of 16%. Twelve economic regions recorded productivity levels lower in 2018 than 2010. The worst performer was the Buckinghamshire Thames Valley LEP which saw productivity drop by 11%.

The UK is divided into 168 statistical areas, of this labour productivity increased in 105. The highest productivity growth over 2010 to 2018 occurred in areas of West London followed by Warwickshire, Solihull and Milton Keynes. Tower Hamlets in London was best and had productivity 75% above the UK average whereas Powys in Wales was the worst at –43%.

The UK is also divided into 41 larger statistical areas, of these Inner London West had the highest productivity at 48% above the UK average. Four other areas of London were also in the top 10 subregions with the highest labour productivity outside London seen in Berkshire, Buckinghamshire and Oxfordshire, with labour productivity 17% above the UK average. Overall, 11 out of the 41 areas had labour productivity above the UK average.

The ONS has also published average household disposal income estimates for England and Wales in 2018. The incomes shown are after tax and housing costs are taken off.  The analysis has shown that 87% of 7201 local areas had an average household income of between £22,500 and £39,200; within this over a third were between £28,000 and £33,600.

Of the 50 areas with the highest total incomes, 41 were in London with the lowest incomes more widely spread geographically across England and Wales. The North East, East England, London, and the South East had no local areas in the bottom 50.

The wealthiest area in England and Wales was Mickleover in Derby with incomes of £52,200 and the poorest was Highfield North in Leicester with £12,500. The two areas are 30 miles from each other and ranked 7200 places apart.

UK stats

UK GDP showed no growth in the three months to January and there was no growth in the month itself. Over the quarter, construction performed well and was up by 1.4% but production fell by 1% and services were flat. Annual growth was 1.1%.

GDP rose by 0.1% in the euro area and by 0.2% in the EU27 during the fourth quarter of 2019, according to Eurostat. Annually GDP rose by 1% in the euro area and by 1.2% in the EU27.

Key European economies remain sluggish; over the quarter Germany was at a standstill and France contracted by 0.1%, with Italy shrinking by 0.3%. Annually, Germany grew by 0.5% and France by 0.9% with 0.1% growth in Italy.

The UK labour market was largely unchanged, with the level of employment increasing to a record high of 32.99m and the level of unemployment stable at 1.34m or 3.9%.

The euro area unemployment rate was 7.4% in January 2020, with the EU27 rate at 6.6%. The lowest unemployment rate in January 2020 was 2% in the Czech Republic and the highest was 16.5% in Greece.

UK inflation was 1.7% in February 2020 down from 1.8% in January. Key downward contributions came from motor fuels, games, toys and hobbies with the biggest risers housing, water, electricity and gas.

Euro area annual inflation was 1.2% in February, down from 1.4% in January. European Union annual inflation was 1.6% in February 2020, down from 1.7% in January. A year earlier, the Euro area rate was 1.5%.

The UK public sector deficit in February was £0.3bn, £0.3bn less than in February 2019. Debt at the end of February 2020 was £1,791bn, 79.1% of GDP, a decrease of 1.1% on February 2019.

London top of the ‘regional’ leagues but Scotland takes the productivity growth crown, and regional economies more exposed to manufacturing suffer Brexit buffeting

Reading Time: 3 minutes

First, the ESCoE nowcast for the 12 months ended December 2019 on a rolling 4 quarter basis. This flagged UK growth at 1.4%, growth in London ranked top at 3.3% and growth in the East Midlands ranked last at 0.1%.

But official ONS figures for an earlier period showed the East Midlands faring better. These figures are for the period six months before ESCoE’s estimates shown above and compare GDP in the quarter ended June 2019 with the same quarter a year earlier.

According to these more volatile figures, the East Midlands economy grew by 1.8%, down from 2% growth which placed the East Midlands second out of the twelve UK ‘regions.’ Again London topped the table with growth of 4.5% whilst UK growth over the same period was 1.4%. On these stats the North West economy was the worst performer and contracted by 0.7%, one of three regions in the UK to suffer a decline.

In the same report, there was no surprise that the ONS’s figures also highlighted that the standalone quarter to June 2019 was worse for the North West than the previous quarter. The North West economy declined by 1.6% in April to June 2019 placing the North West joint last (with the West Midlands) out of the twelve UK ‘regions.

On these figures six regions of the UK saw their economies contract as did the UK overall by 0.2%. At 1% London grew the most.

ONS productivity per hour figures had two regions above the UK average in 2018, London, +31.6% and the South East +9.1%. These regions record high levels of hours worked and their high productivity pulls up the UK average so much that all other regions fall below it. Wales was furthest off the average at -17.2%.

In terms of output per job, London was a bigger outlier, at 40.5% above the average. Again Wales was furthest off the average at -18.2%.

On productivity growth in output per hour, six regions of the UK expanded. At 2.3%, growth was fastest in Scotland and the biggest contraction was in Yorkshire and the Humber at 2.5%. UK growth and growth in London were both 0.5%.

On average, in 2018 the UK economy produced about £35 of value for each hour worked, with finance and insurance top at c£69 per hour compared with accommodation and service activities productivity at c£17 per hour.

Also ONS earnings figures showed UK average earnings grew by 2.9% or by 1.4% after inflation. London had the highest average earnings of £805 and the lowest average earnings of £530 were recorded in the North East.

UK stats

UK GDP showed no growth in the three months to December although there was growth of 0.3% in the month itself. Over the quarter, construction performed well and was up by 1.5% but production fell by 0.8% and services grew by 0.1%. Annual growth was 1.1%.

GDP rose by 0.1% in both the euro area and the EU28 during the fourth quarter of 2019, according to Eurostat. Annually GDP rose by 0.9% in the euro area and by 1.1% in the EU28.

Key European economies remain sluggish; over the quarter Germany was at a standstill and France contracted by 0.1%, with Italy shrinking by 0.3%. Annually Germany grew by 0.5% and France by 0.8% with no growth in Italy.

The UK labour market was largely unchanged, with the level of employment increasing to a record high of 32.93m and the level of unemployment decreasing to 1.29m or 3.8%.

The euro area unemployment rate was 7.4% in December 2019, with the EU28 rate at 6.2%. The lowest unemployment rate in December 2019 was 2% in the Czech Republic and the highest was 16.6% in Greece.

UK inflation rate was 1.8% in January 2019, up from 1.4% in December. Key downward contributions came from furniture and furnishings, in particular settees and double beds, with the biggest risers electricity prices, fuels and lubricants, clothing and airfares.

Euro area annual inflation was 1.4% in January, up from 1.3% in December. European Union annual inflation was 1.7% in January 2020, up from 1.6% in December. A year earlier, the Euro area rate was 1.5%.

The UK public sector surplus in January was £9.8bn, £2.1bn less than in January 2019. Debt at the end of January 2020 was £1,798bn, 79.6% of GDP, a decrease of 0.7% on January 2019.

Airlines, rail, film, airports, ships, legal firms, energy supply and banking – no sector seems off limits to state intervention

Reading Time: 5 minutes

Few would argue that where there is market failure then an intervention by the state can be justified, however, many would argue that the interventions of the 1970s were largely horror shows which dragged down the state itself, everything else lies in the middle.

First Carillion and Thomas Cook were batted away, then even British Steel (for now at least) did not receive largesse from the state, but since then a number of industries have seen interventions.

Early in the month ministers intervened in the airline sector, confirming that Flybe will receive state support because of its regional connectivity role. The rescue deal details are unclear, but appear to offer deferral on the firm’s Air Passenger Duty (APD) and a short-term loan. Connect Airways – the consortium that includes Virgin Atlantic, Cyrus Capital and Stobart Group – which owns Flybe, will also inject another £30m into the business.

On rail, the government’s nationalisation of Northern Rail has thrown the South Western Railway and Transpennine franchises into sharper focus. The service offered by Northern Rail appeared beyond the pale, but interventionists beware, more than a year after Transport for Wales took over the Welsh rail franchise, overcrowding and poor punctuality continue, with the firm admitting improvements have been slower than they would have liked. Transport for Wales is a not-for-profit company owned by the Welsh Government, which is no doubt glad the contract is managed at ‘arms length’ by its appointed board.

Still with Wales, but now on airports, a Welsh Government spokesman has said state owned Cardiff Airport adds c£250m GVA to the Welsh economy and sustains around 2,400 aviation related jobs.

Last year a new tax payer loan was announced bringing the total amount of cash the airport can borrow from the Welsh Government to £59.4m. Most of the original loan of £38.2 has already been drawn down according to officials, which suggests the new £21.2m blurs the line between investment and working capital. 

Its latest accounts show the airport made a pre-tax loss of £18.5m in 2018/19 and barely recorded a positive EBITDA figure. Welsh ministers paid another £52m in 2013 to buy the airport. At c£80m of public money already deployed to keep the airport operating, and with a further £21m now at risk, the economic case looks increasingly thin.

Also on airports, but this time in Scotland, additional loans of £33m to keep Prestwick Airport afloat are now worthless the Auditor General for Scotland has said. Last month Holyrood Transport Secretary, Michael Matheson, said he had accepted a recommendation from the airport’s operators to appoint a preferred bidder but was not able yet to disclose the identity of the purchaser involved.

From ships, to fabrication, to steel, Scottish taxpayers have had to recently write off nearly £140m in loans and guarantees largely to private companies according to Auditor General Caroline Gardner. They include a £45m loan to the Ferguson shipyard on the Clyde, a £21m guarantee repayment fee from Liberty Steel and a taxpayer loan of £37m to the BiFab fabrication company, which is now valued at £2m.

On banking, the Scottish government has committed £2bn of taxpayers’ money to fund the Scottish National Investment Bank over the next decade after MSPs passed the necessary legislation. Whether there is sufficient market failure to warrant state intervention in business finance on this scale remains a moot point.

In the semiconductor trade, Diodes Incorporated, which took over Texas Instrument’s Greenock site last year, is set to receive a £14m taxpayer inducement from Scottish Enterprise. The funds form part of a £47m investment in upgrading the site and training the 300-strong workforce. The company has also received funding from Inverclyde Council to assist with the development of the site.

In the film business, the Tynwald’s enquiry into the island’s foray into the industry has found the Isle of Man government gambled £60m of taxpayers’ money via the island’s Media Development Fund between 2007 and 2016; £32m has so far been returned from the investments.

On the legal sector, a law company set up by Northamptonshire, Central Bedfordshire and Cambridgeshire county councils has recorded a £1.2m loss. The firm, LGSS Law, is owned by the three councils and offers public sector legal services. It is understood that sizeable overdrafts offered by Northamptonshire and Cambridgeshire County Councils have been largely drawn down

A new energy supplier for London, backed by City Hall, has been launched. London Power is not a London Assembly owned business, however, although the exact details of the deal between the Mayor and Octopus Energy are not known.

Highlighting the problems which can occur when the state gets involved in energy businesses, Bristol City Council owned Bristol Energy lost c£10m last year. Bristol Energy was set up in 2016 to provide ethically sourced, low-cost power and return a profit for Bristol taxpayers; instead the venture has so far soaked up £37m of public funds. Nottingham council owned Robin Hood Energy has likewise required taxpayer bailouts.

Interventions’ with public money are a risky business.

The awfulness of the pre-1997 ‘golden age’ of British Rail has been all too quickly forgotten but the state must retain the right to intervene where the imperfect system which replaced BR fails.  On the other hand, whilst connectivity (Flybe) and inducements to win internationally mobile projects (Diodes Incorporated) might on the face of it warrant state intervention, forays into film, airports, ships, fabrication yards and the steel industry begin to ring alarm bells.

And then there was HS2.

National stats

UK GDP increased by 0.1% in the three months to November although there was a contraction of 0.3% in the month itself. Over the quarter, construction performed well and was up by 1.1% but production fell by 0.6%, with manufacturing down by 0.8%; services grew by 0.1%. Annual growth was 1.1%.

GDP rose by 0.1% in both the euro area and the EU28 during the fourth quarter of 2019, according to Eurostat. Annually GDP rose by 1% in the euro area and by 1.4% in the EU28.

Key European economies remain sluggish; over the quarter Germany has grown by 0.1% but France contracted by 0.1%, with Italy shrinking by 0.3%. Annually Germany grew by 0.5%, France by 0.8% but Italy was at a standstill.

The UK labour market was largely unchanged, with the level of employment increasing by 359,000 to a record high of 32.9m and the level of unemployment decreasing by 64,000 to 1.31m or 3.8%. Average earnings grew by 3.2% in the year to November or by 1.6% after inflation.

The euro area unemployment rate was 7.4% in December 2019, with the EU28 rate at 6.2%. The lowest unemployment rate in December 2019 was 2% in the Czech Republic and the highest was 16.6% in Greece.

The UK inflation rate was 1.4% in December 2019, down from 1.5% in November. Key downward contributions came from accommodation services and clothing with the biggest risers housing, water, electricity, gas and other fuels.

Euro area annual inflation was 1.3% in December, up from 1% in November. European Union annual inflation was 1.6% in December 2019, up from 1.3% in November. A year earlier, the Euro rate was 1.5%.

Public sector borrowing in December was £4.8bn, £200m less than in December 2018.

Debt at the end of December 2019 was £1,819bn, 80.8% of GDP, a decrease of 0.9% on December 2018.

Falkirk tops the UK growth league

Reading Time: 3 minutes

According to ONS figures out this month, in 2018 the highest annual growth rate seen in the 179  local areas of the UK was 10.5%, in Falkirk, the lowest level was in Mid and East Antrim at -10.1%, a 20% swing. So what has gone well in Falkirk?

On the face of it, Mid and East Antrim town, Ballymena, is not dissimilar to Falkirk. However, in 2018 people in Falkirk increased GDP from £29,869 to £33,868, whereas in Ballymena there was a c£5K drop to £29,885.  Both areas are close to the capital cities of devolved administrations, where Belfast had GDP per head of £44,332 in 2018 and Edinburgh had £51,224.

Ballymena has a central location in Northern Ireland and is connected to the M2 motorway. It has a station on the Belfast/Londonderry railway line and Belfast International Airport is only 18 miles away and Belfast City Airport is also accessible. The area is also close to the ports of Larne and Belfast, 20 and 27 miles away respectively.

Falkirk also occupies a central location in Scotland, with direct access to the north-south (M9) and east-west (M876) motorway networks. Falkirk High is on the main Glasgow-Edinburgh line, with four trains an hour to either city. Falkirk Grahamston is on the Edinburgh to Dunblane Line which has frequent connections to Edinburgh. The town also has a direct rail service to London. 

Additionally Falkirk has bus services to Stirling, Edinburgh and Glasgow and sits on the junction of the Forth & Clyde and Union Canals. Glasgow and Edinburgh airports can be reached within an hour.

So both Ballymena and Falkirk have good rail and motorway links to major cities, both are close to international airports and Grangemouth and Larne are both active ports. Why the difference?

Whereas the economy of Falkirk has tilted towards retail and services in recent years, away from the heavy industries and manufacturing sectors of the pre 1980s, Ballymena has not restructured so successfully.

In April 2018, Ballymena saw production at the town’s Michelin’s tyre factory end after 50 years. The 840 headcount fell over a two year period at the site after the company announced in November 2015 that it was closing the factory. Then, at the end of 2017, the JTI Gallaher cigarette factory closed with the loss of another c800 jobs.

In September last year, the Ballymena-based bus manufacturer Wrightbus was placed into administration and put up for sale, with c1,200 staff losing their jobs. Since then the facility has completed its first delivery of new buses following the company’s acquisition in October by new owners Bamford Bus Company.

If Ballymena has been too dependent on manufacturing, then what has Falkirk got right?

A major catalyst for change was a millennium project, the £17.5m Falkirk Wheel, which re-connected the cross country Forth & Clyde Canal with the Union Canal from Edinburgh. The wheel, which is a rotating boat lift, was opened in 2002, and attracts c500,000 visitors a year (more than 7m since it opened.)  

Also in Falkirk, the Kelpies, 30-metre-high horse-head sculptures depicting kelpies (water spirits) are seen by c560,000 people a year. The £5m horse sculpture was commissioned as part of the £43m Helix regeneration project, a partnership between Falkirk Council and British Waterways which received a £25m grant from the Big Lottery fund. Tourism now generates £110m+ for the local economy and employs nearly 2,000 workers in the area.

As well as flagship regeneration projects, Falkirk has also been successful in attracting investment from businesses of all sizes to the area. Glasgow University spin out, scanning technology company Lynkeos, established its headquarters in Falkirk and Ian MacLeod Distillers is hoping to reopen the Rosebank Distillery in 2020. Despite its recent takeover by a Canadian firm, Alexander Dennis, one of the world’s largest bus manufacturers, is headquartered in Falkirk with a factory nearby.

The Falkirk area is also set to benefit from the £1bn worth of investment earmarked for the UK by chemical giant Ineos. In February 2019, the firm said part of this investment includes building a £350m new steam and power energy plant at Grangemouth. Grangemouth benefited from earlier investment from Ineos in 2016, when the firm chose the port to transit US shale gas (used to create plastic pellets for general manufacturing.)

Good fortune or well planned, well executed economic development?  Falkirk Council and Scottish Enterprise are likely to argue the latter but it’s probably a bit of both. Who takes the plaudits is a moot point, but according to the ONS’s growth figures, there is credit due

The UK avoids recession, London is the ‘regional’ star performer and Northern Ireland steals the South West’s low unemployment crown

Reading Time: 3 minutes

On regional stats, and following its first publication of quarterly GDP estimates for the regions in September, the ONS has now published its next estimates for the nine English regions, and Wales, for the year to March 2019. GDP figures have been available for the UK since the 1940s, for Scotland since 2002 and Northern Ireland since 2013.

The figures showed that London’s economy grew by 4.2%, up from 2.3% the previous quarter. This placed the capital top (previously fourth) out of the twelve UK ‘regions.’

Yorkshire and the Humber was bottom of the rankings at -0.3%, and propelled by a drive to meet the original March 31st Brexit date, UK growth over the same period was 2.2%.

The ONS figures also showed that growth in London’s economy accelerated in the quarter to March 2019. The capital’s economy grew by the most in the UK, 1.2% in January to March. Contractions of 0.2% were seen in Yorkshire and The Humber and the East Midlands, although Wales was bottom with -0.5%.

Estimates published by ESCoE last month for the year ended September 2019, a more recent period than the ONS figures, ranked London top (previous ranking also first) with growth of 2.3%. Using this metric, UK growth was 1.45% which compared with growth in the South West of England (bottom) at 0.41%

More data from the ONS showed that unemployment fell between July and September; the decrease of 0.1% took the overall rate to 3.8%. Northern Ireland had the lowest rate of 2.5%. The highest rate was 5.9% which was recorded in the North East.

The South West had the highest employment rate at 81.0% which compared with 71.2% in the North East; the UK rate was 76.0%.

In September, average earnings in Wales were down by £55 to £527 per week, the lowest in the UK. London had the highest average earnings of £830.

The biggest jump in earnings was £32 per week in the East of England. In the UK overall, average earnings grew by 3.6% or by 1.8% after inflation.

Welsh average property prices fell by 2.8%, the biggest drop in the UK over the month. The largest increase was in Northern Ireland where prices increased by 2.3%. UK prices fell by 0.2% to £234,370 during September.

The lowest annual growth was in London, where prices fell by 0.4% over the year to September 2019. The highest annual growth in England was in the North West, where prices grew by 2.8% and in the UK, Northern Ireland house prices grew the most, at 4.0%. The UK annual growth rate was 1.3%.

National stats

A recession was avoided when the ONS said UK GDP increased by 0.3% in the three months to September although there was a contraction of 0.1% in the month itself.

The services sector was the main driver of growth, up by 0.4%. Construction also performed well but production, especially manufacturing, was flat in the three months to September 2019. The trade deficit narrowed, mainly due to growing exports of both goods and services. Annual growth dropped to 1.0%.

GDP rose by 0.2% in the euro area and by 0.3% in the EU28 during the third quarter of 2019, according to Eurostat. Annually GDP rose by 1.2% in the euro area and by 1.3% in the EU28.

Key European economies remain sluggish; Germany has grown by 0.5% and France by 1.3%, with Italy at last showing some growth of 0.3%.

The UK labour market was largely unchanged, with the level of employment falling by 58,000 to 32.75m and the level of unemployment decreasing by 23,000 to 1.31m or 3.8%.

An increase in average hours meant that total hours worked was unchanged in Q3 to some extent offsetting the drop in employment. Average earnings grew by 3.6% in the year to September, compared with the previous figure of 3.8%.

The euro area unemployment rate was 7.5% in September 2019, with the EU28 rate at 6.3%. The lowest unemployment rate in September 2019 was 2.1% in the Czech Republic and the highest was 16.9% in Greece.

The UK inflation rate was 1.5% in October 2019, down from 1.7% in September. Key downward contributions came from electricity, gas and other fuels as a result of changes to the energy price cap. Further downward contributions from furniture, household equipment and maintenance; and recreation and culture, were partially offset by rises in clothing and footwear prices.

Euro area annual inflation was 0.7% in October 2019, down from 0.8% in September. European Union annual inflation was 1.1% in October 2019, down from 1.2% in September. A year earlier, the rate was 2.3%.

Public sector borrowing in October was £11.2bn, £2.3bn more than in October 2018.

This is the highest October borrowing for five years. Debt at the end of October 2019 was £1,798.5bn, 80.4% of GDP, a decrease of 1.1% on October 2018.

UK productivity problems persist, a decade of deficit reduction ends, and we are all a little happier

Reading Time: 3 minutes

The UK’s productivity puzzle continued, with productivity in the UK falling at its fastest annual pace in five years in the April-to-June quarter, according to the ONS.

The figure – measured by output per hour – fell by 0.5% after two previous quarters of zero growth. Both services and manufacturing saw a fall from April to June. Few would deny the fall is unwelcome, but we do have more people employed than ever before.

In response, the Government announced an £88m cash injection aimed at the next generation of supercomputers, and research into productivity imbalances, poor management practices and skills investment.

The £88m comes out of the Strategic Priorities Fund, which supports high quality multidisciplinary R&D as part of the government’s aim to invest at least 2.4% of GDP in research and development by 2027.

The last regional productivity figures show Inner West London had the highest labour productivity at 50% above the UK average, while the highest labour productivity level outside of London was in Berkshire, Buckinghamshire and Oxfordshire, a drop to 14% above the UK average. The lowest level was in Cornwall and Isles of Scilly at 32% below the UK average.

In a recent speech, former London Mayor, Boris Johnson, said he wants London’s vigour to spread into the regions, boosting productivity, growth and tax revenue.

London attracts the highest qualified workers, denuding underperforming regions of those most able to be productive. London is also much better at attracting inward investment from highly productive multi-national companies. Productivity is also highest among larger companies but in many regions of the UK, small companies dominate.

But let’s not forget, last month the current Mayor of London, Sadiq Khan, launched a report highlighting London’s contribution to the UK economy. Khan’s report outlined the economic case for how success for the capital means success for the UK as a whole.

In its latest estimate of regional public spending and regional tax revenues in 2018, the ONS concluded that only three regions ran a surplus and contributed c£60bn to the Treasury, of this London’s £34.3bn was by far the largest.

Killing the goose that lays the golden egg would be foolish. Instead let’s get regional policy right.

The Stats

The ONS said UK GDP fell by 0.1% in August but in the three months to August it grew by 0.3%. A weak performance across manufacturing was offset with TV and film production helping to boost the services sector. Annual growth is 1.3%.

GDP rose by 0.2% in the euro area and by 0.3% in the EU28 during the third quarter of 2019, according to a flash estimate by Eurostat. Annually GDP rose by 1.1% in the euro area and by 1.4% in the EU28. Key European economies remain sluggish; Germany has grown by 0.4% and France by 1.3%, with Italy at last showing some growth of 0.3%.

The UK labour market showed signs of slowing, with the level of employment falling by 56,000 to 32.69m and the level of unemployment increasing by 22,000 to 1.31m or 3.9%.

The euro area unemployment rate was 7.5% in September 2019 with the EU28 rate at 6.3%. The lowest unemployment rate in September 2019 was 2.1% in the Czech Republic and the highest was 16.9% in Greece.

The UK inflation rate was 1.7% in September 2019, unchanged from August 2019. Key downward contributions came from motor fuels, second-hand cars, and electricity, gas and other fuels. These were offset by upward movements from furniture, household appliances, hotel overnight stays, and from recreation and culture items.

Euro area annual inflation is expected to be 0.7% in October 2019, down from 0.8% in September, according to a flash estimate from Eurostat.

British public sector borrowing rose by 21.6% in the first half of the tax year, ending a decade of deficit reduction. Public sector net borrowing in September totalled £9.4bn, excluding public-sector banks, up from £8.8bn in September 2018.

This took borrowing in the six months from April to £40.3bn. Due to increasing public spending the government is on course to miss its target of keeping borrowing below 2% of gross domestic product in 2020/21.

ONS house price data showed average house prices increased by 1.3% in the year to August 2019, up from 0.8% in July 2019. Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.

The lowest annual growth was in London, where prices fell by 1.4% over the year to August 2019. The highest annual growth in England was in the North East, where prices grew by 3.3% and in the UK, Welsh house prices grew the most, at 4.5%.

Despite continual Brexit woes, we are all a little happier according to the ONS. In the year ending March 2019, there was a slight improvement in average happiness ratings although anxiety ratings increased in Northern Ireland which brought the Province back into line with other UK countries on this measure.

Folk in the Orkney, Western and Shetland Islands and Fermanagh and Omagh in Northern Ireland were the happiest. Residents in the London boroughs of Lambeth, Hackney, Islington and Camden were the most miserable.