jka on economics UK

GDP growth up by 1.8% in the first quarter - it’s life George but not as we need it.

GDP growth in the first quarter was up by 0.5% compared to the final quarter of 2010 and up by 1.8% compared to a year ago. The preliminary estimate is in line with consensus forecasts. Ed Balls, Shadow Chancellor, said: “These figures show an economy that has flatlined since the autumn.” On the other hand, the Chancellor and the Prime Minister are able to claim both the 0.5% and the 1.8% year on year growth represent a positive growth out turn.

Manufacturing grew year on year by just under 5% and construction despite the down turn in the quarterly figure was up by 3.4%. Distribution, hotels and restaurants increased by 1.5% year on year, transport, storage and communications were up by 1.5% as were business services and finance. Government and other services increased by 1.4%.

It is unlikely the figures will change views on the monetary policy committee and an interest rate rise, which at one stage could have taken place as early as May is now likely to feature in early Autumn.

For the year as a whole, the consensus forecast is for growth of around 1.7%. Assuming the economy grows quarter on quarter in Q2 by a further 0.5%, the rate of change year on year would fall to 1.2%. This would be a worrying development and signal a slow down which may be difficult to reverse without a plan B for the Chancellor. It is growth and evidence of life but not as we need it for this stage in the recovery. 

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

 

Apple Case Study - from the iPod to the iPad - Product Life Cycles and growth potential

The Apple product life cycles indicates just how big the iPhone and the iPad will be over the next few years. It took the iPod five years to break the thirty million units per annum mark. The iPhone got there in four and the iPad will make it in year two of launch. As for the Sony Walkman it never made it, it took over ten years to top out, the iPod topped out within eight years of launch. Apple product Life Cycles are moving faster and higher sooner than ever before.

iPod sales may have peaked in 2008 at just under 55 million units and may fall to around 45 million units this year but the iPhone is set to sell just under 70 million units and the iPad is chasing fast behind. It all adds up to an exciting phase of growth for Apple over the next four years with revenues set to rise over $100 billion in 2011.

Students of corporate strategy and business theory are familiar with the concept of the Product Life Cycle. Generally the life cycle is perceived to have four specific stages, introduction, growth, maturity and decline generally plotted with volumes a function of time.

In the introduction phase, costs are high, sales volumes are slow, there may be little or no competition and customers have to be stimulated to action. Profits are limited and the product is cash extensive as marketing costs are substantial. Key customers tend to be innovators and early adopters.

In the growth phase, unit costs are reduced as volumes increase, advertising is amortised over greater volume, market awareness increases beyond the early adopters, to the “early majority”, competition increases with more competitors entering the market and price levels may begin to fall. Profits increase but the product remains cash extensive as greater investment in marketing or working capital is required.

In the maturity stage, costs are lowered further as volumes have increased, the market becomes more competitive and alternative products begin to date the initial product offering. The product remains profitable and begins to generate cash. The innovators, early adopters and early majority are joined by the “late majority”.

In the saturation and decline phase, sales volumes decline, profits margins are maintained and the product becomes remains cash generative. The laggards and luddites still do not enter the market. 

Either way for Apple, four years of strong growth are evident from products already in the line up, both the iPhone and the iPad are set to hit the one hundred million units per annum mark in 2012 and 2014. Despite the march of the Androids, the Apple growth story will continue.

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The Apple Case Study Apple from the iPod to the iPad is available as a FREE download. 

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University. Author of the Apple Case Study from the iPod to the iPad part of which is published in Johnson Scholes Whittington Exploring Strategy 9th edition 2010.

Apple Case Study - from the iPod to the iPad - iPad and the Androids, why the iPad will hold share

Apple has shipped some 20 million iPads in the first twelve months since launch to capture the first mover advantage in the tablet market. Already into the second generation iPad 2.0 the Apple mantra of constant improvement along the Key success factor (KSF) lines is evident. Smaller, faster, better battery life more facilities, more apps, the infinite loop of product development persists. Available in six models 16GB, 32Gb 64Gb wifi and wifi 3G, the price range is from $499 - $829. First mover advantage with Kaizen is a strong combination.

In 2010, Apple shipped 15 million iPads to register a market share close to ninety per cent of the tablet market. But the Androids are coming. Samsung Galaxy emerged as the first to make significant sales as total Android sales jumped to 2.0 million units in the final quarter of 2010. New products from ACER, Advent, and HTC will join forces with the Motorola Xoom and the Blackberry Playbook in 2011 to challenge the Apple hegemony.

Android devices captured 22 percent of global tablet shipments in the three months to Dec. 31, up from 2.3 percent in the preceding quarter according to Strategy Analytics,  the Boston-based researcher. The iPad accounted for 75 percent of shipments in the period, down from about 95 percent, it claimed.

The despatch statistics include pipeline sales rather than consumer purchases, so the estimates of market share flatter the Androids in the final quarter. Let’s not forget the early claims of 8% market share for the MS Zune in the iPod market on launch, quickly falling to 4% then 1%, three years post launch. 

Google gives away Android for free to boost revenue from services such as mobile advertising and expand the market for its search engine. A wider range of cheaper devices will probably erode the iPad’s market dominance, said Neil Mawston, director at Strategy Analytics.

However, we believe that Apple will sustain a 75% share of market over the medium term despite the Android challenge, following the iPod MP3 market share model. First mover with constant improvement is a powerful combination and Apple is never afraid of cannibalistion of own product sales in the process.

How big will the market be? iPad sales in the first quarter of the year fell to 4.7 million units in the first quarter of 2011 down from 7.3 million units in the Christmas quarter. Apple claims to have sold all they could get as supply restrictions failed to meet strong demand.  

Still Apple iPad sales in 2011 are likely to be between thirty to forty million units, with Android sales restricted to around ten million units. This would give total segment sales of forty to fifty million units and feed an Apple market share of 75% to 80%. 

In 2012, the market will increase to one hundred million units with the potential to double in the following year 2013 and double again by 2015. This would create a market worth well over $150 billion dollars retail by the close of the five year outlook. 

In 2011 Apple sales will soar to over $100 billion compared to $5 billion in 2001 the launch of the iPod. The potential prize with the emergence of the Tablet sector is huge and Apple is well placed to meet the challenge of the Androids. First Mover advantage, Kaizen and Key Success Factors the key. 

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Author of the Apple Case Study from the iPod to the iPad. Available as a FREE download here.

The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University. Author of the Apple Case Study from the iPod to the iPad part of which is published in Johnson Scholes Whittington Exploring Strategy 9th edition 2010.

Puzzles at the Bank of England as the economy doesn't fit the models

Writing in today’s Daily Telegraph Roger Bootle makes the point that economics is too important to be left in the care of academics. The emphasis on mathematics and econometrics at the expense of economic history and pragmatic interpretation of events is evident. 

“Pick up the leading journals today and even many economists cannot understand the titles, never mind the articles. Open the pages, littered with algebra, and you could be forgiven for thinking that you were looking at a musical score. The mathematicians have taken over.”

“Students of economics today are force-fed theoretical models of startling banality and irrelevance, leavened only by doses of econometric techniques of dubious validity and near-zero intellectual interest. Typically, they complete their course knowing nothing about the British economy and untrained in how to think.” 

I do like Roger Bootle. I once went on a course to understand GARCH modelling. This is a modelling technique involving Gaussian or general autoregressive conditional heteroskedasticity. I didn’t understand a word as the lecturer began to chalk obscure hieroglyphics onto a blackboard from 9:00 am in the morning. There were only six of us in the room and was feeling more than a little overwhelmed. As time moved on 11:30 in fact, the lecturer realised he had made a mistake in the chain process at around ten minutes passed ten and a full hour and ten minutes were wiped off the board. We broke for coffee and I didn’t go back. 

If you read the minutes of the Bank of England Monetary Policy committee for last month you begin to think that RB has a good point. The Bank of England is puzzled that theory isn’t working. A depreciation of sterling according should lead to an improvement in the Balance of Payments. Exports are cheaper and imports are more expensive. There should be a reduction in import volumes but the bank noted :

“It was puzzling that import growth had remained so robust, despite the substantial depreciation of sterling. It was possible that domestic substitutes for some imported goods and services were not available. It was also possible that UK firms in some industries lacked the plant or capacity to expand production rapidly in response to the past depreciation of sterling and it would take time for them to install it."

Hello! It’s a wake up call for the Bank of England. The Bank has over two hundred economists educated to Masters or PhD standard. They produce much research and analytical papers. Two of my favourites from last year are :

“How non Gaussian shocks affect risk premia in non-linear DSGE models”. (No. 417) and “An efficient method of computing higher order bond price perturbation approximations.” (No 416). Very helpful to policy makers everywhere, I am sure.

Someone should commission a paper and send it to the MPC, on why depreciation has never worked, be it 1931, 1947, 1967 or 1992. Peter Spencer of the ITEM club points out the manufacturing has been in decline since the 90’s. I presume he meant the 1890’s. In 2011 there is little manufacturing capacity in the UK and this is likely to remain the case. There will be no rebalancing of the economy towards net trade surplus.

In 1983 the UK went into deficit in manufactured goods following the Howe Thatcher pogrom. The trend decline is getting worse not better. Only in one manufacturing sector, chemicals does the UK trade at a surplus the rest is in serial deficit. 

The Bank seems to think that in pubs around the UK discussions are taking place about the merits of open hearth steel making versus Bessemer and the electric arc furnace. Resurrection of tube making facilities using the pilger process is also on the agenda presumably but where to buy the equipment? Back to the darts with a pint and a packet of pork scratchings the only option. Import substitution - buy real ale. Devaluation isn’t working but then it never did.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

UK Trade deficit - this is no time to be bashing the banks!

In 1931, the deficit on balance of trade in goods and services amounted to -2% of GDP. The import bill for food, beverages and tobacco amounted to 8.6% of GDP. Add in the raw materials bill, and a manufacturing surplus of just £72 million could do little to offset the 12.3% GDP bill for essential imports in food and basic commodities. Invisible earnings, which would normally finance the import bills had been hit by a fall in revenues particularly shipping revenues as world trade collapsed.

The UK government faced a crisis which was to lead to Sterling leaving the Gold standard and a devaluation from the level of $4.86 to the dollar. Eat less and export more was the call to remedy the problem.

In 1948, A net trade deficit of just under 2% precipitated the devaluation of Sterling from $4.20 to $2.80. As always the mantra, eat less, export more was prevalent. A food bill of some £450 million amounted to just under 4% of GDP. Including raw materials, the total amounted to 7% of GDP. The UK was struggling to finance the deficit either in terms of manufacturing surplus or invisibles surplus.

By 1950, according to Coutts and Rawthorn, the UK was a great industrial power with more than a third of its labour force employed in the manufacturing sector. There was a trade surplus in manufactured goods equal to 10% of GDP and the country was a net exporter of energy. All appeared to be well, the overall deficit was less than one half of one per cent.

In 1967, seventeen years the Labour government was obliged to run cap in hand to the IMF as a result of a balance of payments crisis. This lead to a further devaluation of the currency. The actual balance of payments numbers were inconsequential, confidence was everything and the Wilson government offered little. The pound in your pocket was unaffected as the devaluation from $2.80 to $2.40 was to unfold. The run on the pound had been triggered by a balance of payments deficit less than 1% of GDP.

Forty three years later in 2010, the UK had a deficit on food of just 1.2% of GDP, add in the bill for raw materials and the deficit amounted to less than 1.5%. Yet the overall deficit on trade in goods amounted to 6.7% of GDP. Since 1983, the UK has been running a persistent deficit on manufactured goods which has compounded the trade deficit problem. In 2010, the trade deficit on manufactured goods amounted to -4.6% of GDP.

The surplus on invisible account could not cover the trade deficit. The overall deficit in goods and services was -3.3% of GDP. In Q4 alone the deficit was -4% of GDP.  The situation is worse than 1931, 1948 and 1967. How did the UK get into this situation?

The paper “Forty years of UK Trade” analyses the deterioration in the UK Balance of Payments position. It will be published sometime next week. For those expecting to see the rebalancing of the economy towards net export growth following the devaluation of the currency once again, it should be an interesting read. The UK needs a strong banking and financial services sector to offset the manufacturing deficit. This is no time to be bashing the banks.

Prospects for the UK balance of Payments : Coutts, K. and Rowthorn, R. 2010 Civitas 

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

Pickles, the run on the Pound and the Sterling crisis.

In 1931 the UK faced a balance of payments crisis and a run on the pound sterling which in the end led to a negation of the Gold peg and the dollar pricing of $4.86. By modern standards the deficit was no big deal. In 1929, the country had a credit balance (current account) of some £100 million falling to £30 million in 1930. In 1931 there was an estimated debit balance of £90 to £120 millions. It was this anticipated deficit on current account that led to a run on Sterling and a repatriation of assets particularly to France and the USA.

The problem for the balance of payments was a deterioration in the net receipts from invisible exports largely as a result of the fall in international trade and collapse of shipping revenues. Furthermore, the government was unwilling to raise interest rates to defend the currency given the overwhelming concern re unemployment.

The visible account had long been in substantial deficit, despite a surplus on manufactures and semi manufactures. Imports of raw materials and food, particularly food, meant that exports of manufactures and a surplus in invisible earnings had to finance the food bill of the UK population.

In 1931, food exports totaled £39 billion but the import bill was £377 billion producing a deficit of £338 million. The proposition to remedy the balance of payments problem was to eat less, import fewer manufactures and export more. Food drink and tobacco imports should be reduced by 7%, manufactured goods imports should be reduced by 25% and exports of manufactures increased by 25%.  A combination of import tariffs and duties would assist in the process.

Certain items were considered to be non-essential including shell fish, game, pickles and pickled vegetables, precious stones, feathers, flowers, plants and bulbs. The category of non essentials, totaled £13 million. The “pickled imports” alone cost the UK £6,000 such was the level of detail in the analysis. In some small way Pickles contributed to the run on the Pound.

In 1930 and 1931, the deficit on merchandise trade was £386m in both years and this was offset by invisible receipts of £400m - £420m in 1931 but falling to £285m to £315m in 1931 largely as a result of the fall in income from overseas investments. In 1930, the visible deficit was equal to almost 9% of GDP but thanks to the surplus on invisible account the current account was in balance.

It was argued there is no problem of the balance of trade so long as the “£ is free to move” as, if the balance is adverse, sterling will automatically fall to the point necessary to maintain equilibrium. “The real problem is to secure such a balance of payments as is consistent with a reasonable exchange values of the £.” 

(Committee on the Balance of Trade - report January 19th 1932). 

In September 1931 the British Government suspended obligations due under the Gold Standard Act of 1925 which required the bank to sell gold at a fixed price. As the statement from the Prime Minister Ramsay MacDonald explained. 

“In the last few days the international financial markets have been “demoralised” and seem intent on liquidating their foreign assets in a sense of panic. Since the middle of July, funds amounting to more than £200 million have been withdrawn from the London market. The withdrawals have been met partly from gold and foreign currency held by the Bank of England, and short term credits of £130 million from the USA and France.” 

By September 1931, reserves were exhausted. In a chilling note from the Bank of England to the Prime Minister, the Deputy Governor E M Harvey reported : 

Gentlemen,

I am directed to state that the credits for $125,000,000 (£25.7m)  and FFs. 3,100,000,000,  (£25m) arranged by the Bank of England in New York and Paris respectively, are exhausted, and that the credit for $200,000,000 arranged in New York by His Majesty's Government, together with credits for a total of FFs. 5 millions negotiated in Paris, are practically exhausted also. The heavy demands for exchange on New York and Paris still continue. 

Under these circumstances, the Bank consider that, having regard to the above commitments and to contingencies that may arise, it would be impossible for them to meet the demands for gold with which they would be faced on withdrawal of support from the New York and Paris exchanges. The Bank therefore feel it their duty to represent that, in their opinion, it is expedient in the national interest that they should be relieved of their obligation to sell gold under the provisions of Section 1 subjection 2 of the Gold Standard Act, 1925. I am, Gentlemen, Your obedient Servant.

And so it was, the UK abandoned the Gold Standard, the Pound was left to float, to a level which will automatically produce equilibrium. The rest “as they say” is history. 

In Q4 2010, the UK visible deficit was 7% of GDP and the pound traded at $1.56. The current account recorded a deficit of £10.5 billion in the fourth quarter of 2010, equating to 3 per cent of GDP. UK reserves amounted to £40 billion. 

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

March of the makers - "we live by exports" Sir Stafford Cripps (1947)

Revisions to the trade data for Q4 2010 will provide little comfort to those anticipating an improvement in the trade balance. In fact it looks as the visible trade deficit is getting worse and the service sector is flagging in its efforts to offset the visible shortfall. 

The deficit in goods and services moved to an overall deficit of £15 billion in Q4 as the trade deficit soared to over £25 billion.

In the budget Chancellor Osborne talked of the march of the makers, if this sounded like the speech from Harold Wilson in the wake of the 1967 devaluation, then check out the pamphlet “We live by exports” prefaced by Sir Stafford Cripps in 1947. “The faster we can get on with production, the better off we shall be”, were the final words in the leaflet. (really cute picture charts!). History makes fools of us all. 

Worryingly, Harold Wilson was confronted with a visible deficit of just 1.5% of GDP and a deficit in goods and services of less than 1%. The UK figures for the final quarter of 2010 are running at a rate of 6% and 4% respectively on an annualised basis.

Mapping the four horses of the economic apocalypse, we have borrowing at 10% of GDP, unemployment at 8% of GDP, a visible deficit at 6% of GDP and inflation heading to 5%. All this and a trend output gap over 6%! This is no time to be bashing bankers and the potential earnings on invisibles. Have a great week-end.

Prime Minister’s Update - the Pound in your Pocket.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

 

Apple Case Study - from the iPod to the iPad - A study in Corporate Strategy

Over the last ten years, Apple sales have increased from $5bn to $65bn and profits have soared to $18 billion. In 2011 sales revenues will exceed $110 billion, thanks to the tremendous success of the iPod, the iPhone and the iPad. In 2001, Apple sales fell by a third and the company reported an operating loss of $350 million. The company was thought by many to be in trouble. In that year, the the iPod was launched, the concept of the digital hub emerged. The company went from strength to strength. This is the case study of Apple in the digital age.

I have always been something of a computer geek. My first computer was a Commodore Pet in 1978. It had 8k of RAM and a cassette player for storage. Programmed effectively, a two dimensional pencil sketch of a rocket would take off and zoom off screen. Beyond that and a few simple games, I don’t recall it did much at all. 

My first experience of Apple was the Apple II in the early 1980’s. The combination of Apple and a Visicalc spreadsheet, greatly enhanced financial and business plan modelling. Business models were more easily produced and what-if simulations were available at the click of a button. It was a great step up from the pencil and calculator.

Seven years ago, I abandoned Microsoft and converted entirely to Apple. Apple Macs, MacBooks, MacBook Air, iPods, iTouch, the iPhone and the iPad, I had to try them all and never looked back 

I have just updated my Strat Man case study on Apple in the digital age from the iPod to the iPad. I shall be guest lecturing at Salford Business School next week and so a copy has been posted on the pro.manchester web site to share with all.

The case study covers the years from 2000 to 2010. The great era of the iPod, the discovery of the digital hub and Apple’s move into the mainstream consumer market with the iPod, the iPhone and the iPad. It has many great examples for enthusiasts of marketing, leadership, organization, financial analysis and strategic management. I hope you enjoy the case study.

Students of strategic management will be familiar with the BCG Growth Share Matrix with dogs, cows, stars and question marks. This is basis two dimensional strat man analysis. In the case study Steve Jobs outlines, 3D strat man analysis in preparation for the launch of the iPod. From 3D I have now expanded corporate strategy analysis into four and five dimensional analysis deriving technique from contemporary architecture and engineering methodologies.  Download Apple Case Study 2011 

The full presentation includes charts, slides and some great video clips.

First Dimension             Relative Market Attraction

Second Dimension         Relative Market Share

Third Dimension             Relative Financial Strength

Fourth Dimension         Relative Economic Position

Fifth Dimension             Relative Financial Management

An extract of Apple Case Study was published in late 2010 in the 9th Edition of Exploring Strategy Johnson, R. Whittington and K. Scholes,  Pearson,  9th edition 2010.

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JKA is CEO of pro.manchester, a director of Marketing Manchester and a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University. The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts.

Prime Minister’s update : The Pound in your pocket - lessons from history

Since 2008, Sterling has devalued by 20% but there has been no discernible impact on the trade deficit as policy makers have hoped (and as we have consistently predicted). According to policy makers, what does devaluation mean to the British Economy. Here is a quote from the Prime Minister.

“What it [devaluation] does mean is that we shall now be able to sell more goods abroad on a competitive basis. This is a tremendous opportunity for all our exporters and for many who have not yet started to sell their goods overseas. But it will also mean the goods we buy from abroad will be dearer and so for many of these goods, it will be cheaper to buy British. Because one of the great problems we in Britain have had over the past [five or six  years] has been the great increase year by year in imports of goods manufactured abroad.

Saving imports, and still more the export drive, will mean that industrial production will go up. Many industries and firms which are now working below capacity, will have a chance to get into full production. This means more work, more jobs in the development areas, because we intend to be ruthless in diverting new enterprise to those areas."

Is this the "march of the makers" speech from Chancellor Osborne? If the quote sounds familiar, it should do. But it would be even more familiar if prefaced by the words, “from now on the Pound abroad is worth less but it does not mean the Pound in your pocket, or in your purse or in your bank has been devalued.” 

The quote is from Prime Minister Harold Wilson in 1967 speaking of the 14% devaluation of the currency, “creating a great opportunity for exporters and manufacturers and salesmen, what a great opportunity for them”.

So what really happened? In 1967, the pound was devalued by 14% but in the following year, the cost of imports went up by 12.5% and the price index of exports increased by 8%. The following year 1969, export prices rose slightly ahead of imports but by the third year any price gain had been eroded. Import costs and export costs had both risen by 20% compared to 1967. In volume terms by 1970 import and export volumes had risen by 28% compared to 1966. (Source Pink Book ONS).

There had been no relative gains to prices or to volumes relative to imports. Devaluation did little or nothing to solve the problems of the British Economy in 1931, 1945, 1967 and 1992. It  has done little and will do little to solve the problems of the British Economy from 2008 to 2011. 

“The pound in your pocket” is being devalued by higher inflation especially on dollar denominated prices paid for food, energy and commodity imports from abroad. The devaluation will not lead to a rebalancing of the economy. 

A rise in interest rates would increase the value of the pound abroad and the pound in your pocket as the inflation effect of international commodity price rises is moderated. Devaluation isn’t working, it never did.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.

UK Trade in Goods in January - no rebalancing - it's getting worse.

Is it possible to look at the world through rose coloured glasses with your head in the sand? If you are an economic analyst it appears you can. According to the Daily Telegraph, “January’s trade figures lift hopes of an export led recovery.” 

“Economists said the figures raised hopes that trade will make a positive contribution to GDP growth in the first quarter. The Government is pinning its hopes on exports to lead the economy back to health to offset the hit to consumer spending from the austerity measures.” 

According to the Financial Times, “Britain’s deficit in trade in goods narrowed by much more than expected in January, raising hopes that the economy can rebalance away from its dependence on domestic consumption of goods and services.”

The latest trade figures released by the ONS yesterday are the source of all the excitement. The UK’s seasonally adjusted deficit on trade in goods was £3.0 billion in January compared to a deficit of £5.5 billion in December.

The trade in goods deficit was £7.1 billion in the month compared to a deficit of £9.7 billion in December. 

For some analysts, the latest data is welcome confirmation of the “rebalancing of the economy towards export led manufacturing growth. David Cameron said the numbers were "exactly the sort of rebalancing our economy needs".

No doubt the Governor of the Bank of England will be pleased as he stated during the February presentation of the Inflation Report. “I think it would be very peculiar if a 20% fall in the real exchange rate did not lead to some rebalancing. There are very few examples where if you have a persistent fall in the real exchange rate you don't see a rebalancing. You clearly see it in the figures for exports. I think there is certainly evidence that some forms of import expenditure switching is occurring.”

But here is the problem, monthly data on trade can be erratic and subject to revision. Over the latest three month period, the deficit on goods was £25.4 billion compared to £22.5 billion over the same period last year. The deficit is getting worse not better. A quick look at the chart shows the ten year data and the trend line. The deficit was too high in December and too low in January.

In the pro.manchester Economics Review we forecast the trade in goods to continue to deteriorate through the year. The January data does nothing to change this view.

In our forthcoming paper on “Forty years of UK trade data” we will explain why.

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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.