The Daily Reckoning UK

Good News On UK Exports. But…

Ben Traynor

by

Posted 3rd April 2017

It’s the first working day of the month, which can mean only one thing.

Yep, manufacturing PMIs!

Simmer down, now. Contain your excitement.

Very quickly for the uninitiated: purchasing manager indices are a quick, rough-and-ready measure of how a sector is doing.

A survey goes out to selected companies, and the people at those companies who are responsible for buying “stuff” (the purchasing managers) send back answers to various questions.

The questions are factual in nature, and ask whether things like production or number of new orders are up or down compared to a month ago.

The answers are collated to produce a number between 0 and 100, though it’s normally not too far from 50.

Anything above 50 implies sector growth; anything below, sector contraction.

For the UK, this morning’s number was above 50 (yay!) but lower than the previous one (boo!), suggesting a slight slowdown in manufacturing.

It’s the third such fall since the number hit an 18-month high in December.

Hardly a disaster, but a possible early sign of a more generalised economic slowdown.

We’ll see. At this stage, ‘tis but a straw in t’wind.

There were a few interesting data releases towards the end of last week (interesting if that’s your thing).

On a positive note, data published Friday show the UK’s trade deficit – and the broader current account deficit of which it forms a part – narrowed substantially in the last three months of last year.

The main driver was a rise in goods exports, which in turn were boosted by the cheaper pound.

And that, from what I saw, was as far as most write-ups of the story went.

Which left the question: did this narrowing of the trade deficit come about more because volumes of exports were up, or more because their value was now greater when translated into sterling?

In other words, exporters may have taken the chance to improve their margins by keeping prices the same in euros and other currencies and in effect pocketing the depreciation.

I went digging, and found something rather interesting.

Goods export volumes, excluding what are called “oil and erratics”, have indeed gone up.

By the end of January this year they’d seen six consecutive months of growth, and were up 6.5% compared to January 2016.

But here’s the interesting bit. Over the same period, the volume of imports also increased, by 9.1%.

That’s surprising. You’d expect the weaker pound to have hit imports, but it hasn’t.

On the surface it looks like a win-win. Exporters are winning business, but those of us (i.e. all of us) who enjoy consuming imported goods haven’t had to tighten our belts.

Is this what having cake and eating it looks like?

(That phrase would make a lot more sense if it were the other way round, by the way).

Now for the inevitable jug of cold water.

With a weaker pound, how have we been able to keep up our appetite for imports?

It’s an educated guess, but I reckon it’s the same way the Great British Consumer has managed to keep tills ringing for years now.

In the six months to February, consumer credit has risen on average by £1.6 billion a month, according to Bank of England data published Thursday.

Credit card lending grew at an annual rate of 9.3% in February, up from 8.6% the month before.

A day later, the Office for National Statistics revealed that in the last three months of 2016 UK savings ratio fell to its lowest level since the early 1960s.

Household net borrowing was over £11 billion that same quarter, a 30-year high.

I respect your privacy and will never pass on your email address to anyone else.

I realise this is a blizzard of statistics. And if 2016 taught us anything, it’s that stats and facts are a rubbish way to persuade anyone of anything.

As an interlude, then, here’s a picture of a chart that is completely fictitious and has no relevance to anything whatsoever:

Source: Ben’s mind

Scary eh?

Now that I’ve convinced you, the obvious question is this: how sustainable is the current British appetite for borrowing, imports, consuming etc?

It’s tempting to think “not very” and that “this can’t go one much longer”.

But we all like stuff. And we always will.

And it’s also proven that lots of people will borrow to pay for stuff if they don’t have the money.

So this show could run for a while yet.

Of course, if this boost in exports carries on, it may mean more of us can keep buying and importing without needing so much credit to do so.

That’d be good.

Otherwise, the show will keep on running anyway. Until the grand finale…





From time to time we may tell you about regulated products issued by Agora Financial UK Ltd. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment.


I respect your privacy and will never pass on your email address to anyone else.