Positive GDP Effect From UK Data, Trade Figures Deceive

December data released this morning for UK Industrial and Manufacturing Production and for the Trade Balance suggest a small upward revision in GDP estimates may be warranted, but the headline trade data may mask a troubling development.

Firstly, the figures for Industrial and Manufacturing Production were an unalloyed story of greater than expected strength. Industrial Production grew 0.5 percent in December, (vs expectations for 0.2 percent), and Manufacturing Production grew 1.0 percent, (expected 0.2 percent).

Although manufacturing is now dwarfed by the services sector as a proportion of the UK economy, these figures are nonetheless encouraging and complement the more upbeat surveys of Purchasing Managers’ intentions released earlier this month.

Trade figures may flatter to deceive

Whilst the headline Trade Balance was ostensibly better than expected, at a total of £1.109 billion in deficit, (expected £2.7 billion deficit), the composition of this success is rather chilling. Almost all of the improvement came from smaller than expected imports, rather than a large growth in exports. This may tell an underlying story of weak consumption, as the man in the street struggles with unemployment, or the fear thereof, combined with fairly static wages and inflation still running at 5.0 percent for the goods which make up a typical shopping basket for the bulk of the population.

Not game-changers for the Bank of England

All-in-all, taken in aggregate, the figures released today may well therefore ‘cancel each other out’ in terms of their effect on the deliberations of the Bank of England’s Monetary Policy Committee, which is due to conclude its meeting and announce any policy changes at 12.00 GMT today.


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