Chief Economist’s Weekly Brief – Warming up

Governor of the Bank of England Mark Carney has been appointed United Nations Special Envoy for Climate Action and Finance (after his term ends on 31 January). Meanwhile European Central Bank President Lagarde is pushing for climate change to be part of a strategic review of its purpose. A need for public spending to assist the transition to net-zero emissions, and economies in need of spending to boost meagre growth. Hmmmm. Seems there might be a deal to be struck. Now we just need governments to warm to the idea.

Times, they are a changin’. Global trade is stagnating and is dragging down economic activity in almost all major economies. OECD’s downward revision of global growth forecast to 2.9% in 2020 is thus hardly surprising. Contrast that with 3.5% growth in 2018. Policy uncertainty is undermining investment and future jobs and incomes. The OECD’s prescription is structural reforms and bold public investment to raise long-term growth, such as spending on infrastructure to support digitalisation and climate change. However, large downward risks to future growth persist.

Past its peak? Q3’s labour market headlines suggested that the UK’s record breaking run is coming to an end. But some lesser spotted statistics are still revealing figures not seen before. Working households (where all adults work and ex. students) appear to have maxed out at 60% of all households. The proportion of workless households eased to a fresh low of 13.2%. Fewer than 1 in 11 children now live in households were no adults work. Again another record low. That compares with more than 1 in 10 at the last General Election and more than 1 in 6 when austerity began in 2010.

Sceptical.  A lot of promises of a brighter future have been made in this General Election campaign.  So far, the electorate appear unconvinced that these will lead to any real improvement in the economy.  The headline consumer confidence index refused to budge from a six year low of -14 in November.  It’s now almost four years since this measure was last in positive territory.  Consumers remain very downbeat on prospects for the general economy, but feel better when it comes to their personal finances, which should be enough to keep the tills ringing through the festive season.

Bargain hunting. Shoppers might be focused on the Black Friday / Cyber Monday sales but they’re hoovering up cheap deals in the mortgage market, too. Average interest rate on new mortgages in October was close to its all time low, coming in at 1.96%. That rate is just 4bps higher than the trough reached two years ago in October 2017. A lot has changed in that time, in particular the Bank of England base rate has been raised twice from 0.25% to 0.75%. As a result, 5% more people remortgaged last month, compared with a year ago, despite an otherwise slowing housing market. 

Two out of three ain’t bad. An increasing number of local households are availing of attractive interest rates whether to purchase a home or simply refinance to a better deal. Remortgage activity in Northern Ireland during the first nine-months of the year is up almost one-fifth relative to the same period in 2018. That compares with a 1% y/y decline for the UK market as a whole. Meanwhile with one-quarter of the year remaining, 2019 looks set to mark a 15-year high for the first-time buyer market.  The one segment of the local mortgage market not growing is loans for home-movers. The legacy of negative equity, or just lack of sufficient equity, has blighted this part of the market for the last decade.     

Add to basket. It should be no surprise to hear e-commerce sales have been on a tear. UK non-financial businesses have seen their sales rise from just over £500bn in 2016 to a little under £700bn in 2018, that’s about £1.9bn a day. And it’s been accelerating, 2018’s rise was the fastest since comparable records began in 2014. Naturally it’s taking up a larger share of firms’ turnover – 18.4% in 2018, up 1.8 pp from 2017. The larger the business, the more likely it is to make e-commerce sales (47% of businesses with 1,000 or more employees, compared with 12% to firms with sub-10 employees).

New arrivals. Many things have changed since June 2016. One of them is the attractiveness of the UK for EU citizens. Since 2016 UK net migration has been on a downward trend and in the year ending June 2019 an estimated 212,000 more people came to the UK than left, down from 311,000 in the year ending June 2016. Most of this reduction is due to falling EU net migration, while non-EU net migration continued its six-year trend of gradually increasing.  

Mildly encouraging. Euro area inflation moved up to 1.0% y/y in November compared to 0.7% y/y in October. The core rate also surprised on the upside in November, rising 1.3% y/y vs 1.1% y/y in October – the third consecutive monthly rise and a seven month high. All major components of inflation saw rises in the year to November, led by service sector prices. The exception was oil prices, which flat-lined. Still, with business confidence low, it is difficult to envisage a sustained build-up in price pressures in coming months. The ECB’s 2% inflation target is unlikely to be breached any time soon. 

Modest. Allaying some of the fears over a slowing US, growth for Q3 was revised up a notch to 2.1% compared to 1.9% as initially estimated. Consumer spending played a central role while monthly data for October showed it remained steady in the early part of Q4, growing 0.3% from the previous month. But decent spending and a still strong labour market are not putting upward pressure on prices. The Fed’s preferred measure of inflation rate remained at 1.6% y/y, lower than the target of 2%. Can momentum be sustained through Q4? It will depend on continued consumer resilience and whether tentative signs of business investment improving can be sustained. 

Northern Ireland’s three-speed mortgage market finds a reverse gear

Two out of three categories of mortgage activity (first-time buyer, home mover and remortgage) posted faster rates of annual growth in Northern Ireland relative to the UK. However, these three segments of the mortgage market are moving at three different speeds.

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Left turn?

If we consider politics over the past 10 years or so, what is clear is that there was a distinct step to the right in the UK, in the US and elsewhere in the world; the consensus around dealing with the fall-out of the financial crisis taking us in that direction. But there is evidence that we are now set for something of a left turn. And a look at the policies coming from the main UK political parties ahead of the General Election gives credence to this view.

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Two Up Two Down: Latest housing market statistics

Today’s batch of housing market figures for the third quarter could be summed up as “two up two down”. Two indicators (residential property prices and house completions) posted year-on-year growth.  Meanwhile housing starts and the number of residential property transactions are on the wane. 

Generation rent. House prices are always one of the most closely watched economic indicators by the general public or at least homeowners and potential first-time buyers.   Although the rise of the private rented sector over the last decade means for an increasing share of society, rental prices are more relevant than house prices. Homeownership is not on the radar for as many under 40s as it once was.

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Has Northern Ireland gone selfie mad?

Northern Ireland’s Labour Force Survey (LFS) churned out more record highs and lows of the positive variety in Q3 2019.  However, looking through all the statistical noise there are still signs that suggest the labour market cycle has turned. A surge in self-employment has been accompanied by a reduction in the number of ‘employees’ working. Meanwhile the total number of hours worked and average hours worked has eased back from its highs earlier in the year. Given the marked deterioration in business conditions in Q3 and Q4 it is expected that this will increasingly become evident within the labour market in the coming quarters. Q2 2019 is still likely to have represented the peak in the total number of employee jobs as measured in the Quarterly Employment Survey.

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Chief Economist’s Weekly Brief – And they’re off!

The 2019 General Election is officially underway, with politicians of all colours off in search of votes.  At stake is not only the future of Brexit but of fiscal policy, our response to climate change and more besides.  The UK economy looks pale and weak in contrast to the frenzy of activity amongst would-be-MPs.  Business surveys suggest that output stagnated in October, while the Bank of England downgraded it’s growth forecasts, prompting two Monetary Policy Committee members to vote in favour of an immediate 0.25% rate cut. 

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Activity falls markedly in October

Today sees the release of October data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by IHS Markit – indicated that the Northern Ireland private sector remained in contraction. Business activity, new orders and employment all decreased over the month, albeit at softer rates than in September. Meanwhile, inflationary pressures also moderated.

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