The UK low productivity momentum: the real issue

John van Reenen, a professor of economics at the Massachusets Institute of Technology, said if the UK could not boost productivity growth, wages would not increase, tax receipts would not rise and austerity would continue. “Not very nice,” he added.

Read here the FT article https://www.ft.com/content/32ba93b0-8dcf-11e8-bb8f-a6a2f7bca546

No real improvement in the UK after GDP figures

The UK GDP growth was at +0.4% during the second quarter (1.5% at annual rate). The carry over growth for 2018 at the end of the second quarter is 1%.
I have updated my graph on the deviation from the pre-referendum trend. There is no catch up while Eurozone countries are still above the trend. The impoverishment of the United Kingdom after the referendum continues. Not sure it was a good idea for the Bank o England to increase its main rate this month. The increased uncertainty on the Brexit negotiation will not allow a rapid reversal as uncertainty is the main enemy of long term investments, those which improve productivity.
uk-f-g-ea-trend2013-2q2016.png

UK and the European Union

A comparison of two White Papers. The first in 1971 when the UK wanted to join the Common Market and the second, in 2018, for the Brexit. The first had a strong political momentum and a real ambition, the second lacks of a vision.

“The 1971 White Paper had the guts to say a very hard thing: if you renounce an imperial past but fail to embrace a European future you will find yourself nowhere much. The 2018 White Paper is merely a rough map of that nowhere.”

Fintan O’Toole: Brexit White Paper puts UK on road to nowhere
via The Irish Times
https://www.irishtimes.com/opinion/fintan-o-toole-brexit-white-paper-puts-uk-on-road-to-nowhere-1.3566782

Wishful thinking at the Bank of England

The BoE comment on its monetary policy suggests that a rate hike is a possibility at the August meeting as activity is expected to rise. BUT, the momentum is low and even if there is an improvement it will not catch up what has been lost in 2017.
The graph shows the GDP deviation from trend in the UK, EA, France and Germany. The UK was not able to catch the strong EA momentum in 2017 and its internal dynamics was not enough to support growth. Therefore what’s happening at Threadneedle Street? Wishful thinking?
UKez-fr-ge-GDPdeviation.png

The cost of the Brexit for the UK

After the referendum on June. 23, 2016, the British economy has followed a lower profile. This comes from changes in expectations: uncertainty about Brexit rules has created a wait and see behavior and opportunities in other countries have changed people and companies’ mind about investing in the UK.

Therefore the economic trend has changed. We can see that in the graph below. The trend from the start of the recovery in 2013 to the second quarter of 2016 has been extended to the first quarter of 2018. There is a widening gap between real GDP measured by the ONS and the pre-Brexit trend. It the cost of Brexit for the UK. We see a real change after the referendum. Continue reading

British inflation eases

Economists said after the referendum on Brexit that a temporary spike in the inflation rate could be expected due notably to the British currency depreciation.
That’s what has happened with a peak in November 2017 at 3.1%. After this date, the inflation rate is receding at less than 2.5% in March 2018. The core inflation rate has followed the same profile with a current rate at less than 2.3%.
uk inflation rate.png Continue reading