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More good news from the UK economy

Wednesday, November 2, 2016 22:24
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I trust the Treasury and Bank are revisiting their forecasts for 2017 as we speak.

Yesterday the UK’s largest housebuilder, Persimmon, announced another good set of figures. New home sales were up 19% year on year. They have pre sold their homes for 2016, and are ahead of last yea’s performance in sales for the following year. House prices have stayed up, despite Bank and Treasury forecasts to the contrary. Even better news came with Persimmon telling us they are putting in a new brick factory in Doncaster, and aim to be making bricks there next summer. That is exactly the kind of import saving investment we need, to cater for rising domestic demand. Persimmon also pre fabricate parts of their homes from a Midlands factory to speed site construction and improve precision.

A new potash mine investment is going ahead in Yorkshire with a £2.5bn investment. Output of automotive engines was up 6.7% so far this year at end September. Car manufacturing output is up 10.5% over the last year.

Various retailers have confirmed that sales of luxury brands to visitors to the UK have risen sharply following the decline in sterling. Burberrys, for example, said UK retail sales were up 30% when worldwide sales were pretty flat. Meanwhile retail prices fell again last month in sterling terms, despite the fall in the pound. Overall retail sales have been strong since June 23rd and real incomes have continued to rise.

The Bank’s pessimism centres on fears that major companies will postpone or even cancel investment projects. It is difficult to see why, when money, credit and demand are all growing so well. The Nissan news reflects the need for highly productive investors in the UK to reinforce their success for what is an important growing domestic market. UK manufacturing has just become 15% more competitive, underwriting the success of Uk factories for foreign investors. I want to see the government promote UK purchasing. The government itself is a mighty buyer of products. Once free of the EU controls, you would expect exciting new approaches.

Money and credit are growing faster than before the vote. This implies continuing good growth next year. The average forecaster has now revised up their 2016 forecast to the levels last seen before the vote. isn’t it time they did the same for 2017?

The OBR/Treasury forecast matters because it will inform the Autumn Statement. If they persist with a downbeat and inaccurate estimate for next year they will claim tax revenues are lower than the March forecast and spending higher. It is important markets look through this and understand that in practice things are likely to turn out as forecast in March, with a lower deficit as a result.


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