• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

What will UK GDP numbers tell us?

0
  • by James Bevan
  • in James Bevan
  • — 25 Apr, 2013

The Q1 UK GDP numbers are out today, and there’s lots of debate as to whether we’ve experienced a triple dip recession, with negative growth in the quarter. The numbers out today can be revised twice more and are not the most accurate view of the economy in any case given the vagaries of data collection, but they will affect perspectives of policy initiatives and broader sentiment. So however mis-placed the conclusion, markets may decide that if the number’s materially weak, there’s more QE on the way – and therefore more near term support for gilts.

In terms of what the numbers will likely be, it’s difficult to be precise, but on balance a positive number of perhaps 0.1% looks possible, so the ‘triple dip’ avoided. This outcome would reflect the relative buoyancy of retail sales data and it’s clear from the Sports Direct results that some parts of retail have done genuinely well. In contrast, in the past year, construction has been a substantial headwind to growth, subtracting 0.6% from GDP in 2012. It is also one of the downside pressures in Q1, but it may well be that construction output has now reached its trough with scope to support GDP in the near term, given that we can calculate that GDP growth excluding construction is running slightly below 1% year on year.

Looking forward, it’s hard to predict a strong upturn but the growth picture is affected by policy and there is current concerted effort to increase housing market activity and residential construction output with the Funding for Lending Scheme (FLS) and the Help to Buy (HTB) initiatives announced in the Budget. For context, the FLS was put in place in July 2012 and since then quoted two year fixed 75% loan-to-value (LTV) mortgage rates have fallen by around 80bps. HTB was planned to be in operation from April 2013 for a three year period, and essentially allows individuals with a 5% deposit to access 75% LTV mortgages on new build homes with the help of a government loan. This builds upon a previous government initiative called First Buy, and is expected to support 74,000 home buyers (according to figures from the Budget).

All well and good, but the problem is that thus far, the actual volume of lending by banks remains muted. The ‘good news’ is that these policy measures now act helpfully on both sides of banks’ balance sheets with the FLS designed to reduce the funding costs (liabilities) of banks and the HTB schemes essentially limiting the risk of bank loans (assets) by reducing LTV ratios from what they would otherwise be. Extending the scheme to cover buy-to-let will irritate those for whom the focus should be on helping people find and afford a home, but for a government desperate for growth it is likely helpful. And growth is essential to the fiscal arithmetic. If ‘austerity’ drives down revenue at least as fast as costs, it cannot solve the government debt burden problem, and confidence is critical here too. It’s worth bearing in mind that whilst government and private individuals have way too much debt, corporations in aggregate have stronger balance sheets than ever before – but don’t have the confidence to invest.

As to what we might expect in the period ahead, with such a concerted action, we should expect mortgage lending to start improving. Of course it will take time for these policies to have an effect, with large construction firms likely to remain cautious about undertaking large house building projects and likely to move slowly even when they do decide to act. There’s the added issue that house building per se actually only accounts for slightly above 1% of GDP. This means that very large growth rates would be required for this sector to have a meaningful direct impact on overall economic growth, but second order effects from a pick-up in housing market activity, such as increases in repair and maintenance spending, and increased confidence of households, could lead to a large impact on headline GDP. Meanwhile there is tentative evidence in Bank of England surveys of a pick-up in secondary market activity and there is also evidence that current rental yields are above historical averages which taken in conjunction with low mortgage rates, should make purchasing a house an increasingly attractive option for those currently renting.

Overall, we anticipate stabilisation and then meaningful pick-up in housing market activity and construction in the medium term. This should help the UK achieve faster growth in the next few years. As an added point, private sector housing repair and maintenance, as well as other private sector non-housing construction, are at levels close to the 2008/09 crisis lows. This suggests that there is little room for output in these sectors to fall further, and even stabilisation alone should present allow GDP to climb vs 2012’s outcome.

James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccl

Share

You may also like...

  • Euroland recovery enters crucial phase Euroland recovery enters crucial phase 20 Aug, 2013
  • What the BRIC concept did for India What the BRIC concept did for India 28 Aug, 2013
  • Central bank intervention, liquidity provision and European deleveraging Central bank intervention, liquidity provision and European deleveraging 26 Mar, 2012
  • Making sense of the current market, and a perspective of the Kay challenges Making sense of the current market, and a perspective of the Kay challenges 2 May, 2012

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 3 hours ago

    The vaccine may help settle cash flows but inflation remains a risk: Sponsored article: Lauren Sewell examines the prospects for long-term borrowing as Brexit settles and vaccines are deployed against Covid-19. On the 9th October 2019 Whitehall sent… dlvr.it/RqZXCr pic.twitter.com/PzgOZOGQ0k

    Room151 3 hours ago

    ESG in liquidity: Sponsored article: Gavin Haywood looks at the integration of ESG in Federated Hermes’ money market funds. Federated Hermes has over 300 public sector clients invested in our AAA rated money[...] dlvr.it/RqZX5f pic.twitter.com/E87sBXsay8

    Room151 1 day ago

    New realities of investing cash and liquidity: “What to do now?”: Sponsored article: Brian Buck looks at the “unique challenge” for cash management strategies. As investors assess the ongoing impact of the pandemic on their business, levels of cash and… dlvr.it/RqVbk9 pic.twitter.com/ZElVASmEUV

    Room151 1 day ago

    Extra finance promised by the government receives a broad welcome: Sponsored article: The financial pressures facing local authorities this year continue to pose challenges for council treasurers. While the launch of the UK’s Covid-19 vaccination… dlvr.it/RqTzTF pic.twitter.com/HCjH0pyHR5

    Room151 1 day ago

    A savvy approach to managing your cash: Sponsored article: Caroline Hedges examines the need for active cash management to achieve a higher than average return. Last year saw the already mountainous pile of negative-yielding debt around the[...] dlvr.it/RqTzMK pic.twitter.com/uP0RQYTJLt

    Room151 2 days ago

    Putting alternatives at the heart of multi-asset portfolios: Sponsored article: Nick Edwardson looks at the assets that provide the “most attractive opportunities”. We believe that asset allocation is the primary driver of investment returns and that the… dlvr.it/RqQ2Qt pic.twitter.com/WLBzvRRRUQ

    Room151 2 days ago

    Thriving in the pandemic: Avoiding the stragglers: Sponsored article: George Crowdy looks at the sectors providing opportunities for sustainable investment. Throughout much of 2020, we talked about why sustainable investing has thrived in the pandemic,… dlvr.it/RqQ2NQ pic.twitter.com/dxiPWKFsPl

    Room151 2 days ago

    The development of CCLA’s mental health benchmark: Sponsored article: Amy Browne examines the importance of investing in mental health in the workplace. We are living through a public health emergency in more ways than one. Physical health[...] dlvr.it/RqQ2Jx pic.twitter.com/o6yRSCX3oF

    Room151 3 days ago

    Brexit: What the EU trade deal means for the UK economy: Sponsored article: Hetal Mehta looks at the impact of Brexit on economic prospects. Four and a half years after voting to leave the EU, on Christmas Eve the UK finally[...] dlvr.it/RqLBDt pic.twitter.com/No62srfE8h

    Room151 3 days ago

    Cash dethroned: The quest for liquid yield: Sponsored article: Peter Hunt and George Carne ask how treasury departments can balance the need for yield and liquidity. The massive stimulus and waves of liquidity provided by central banks[...] dlvr.it/RqLBDj pic.twitter.com/05g6Zhu1kU

    Room151 3 days ago

    Richard Harbord: Delayed “capital determinations” make section 25 opinions a new crunch point: The severe pressure on local government budgets now means section 151 officers confront a tricky call on  whether they can make a judgement on the robustness… dlvr.it/RqLBDV pic.twitter.com/vTAbDKFzkI

    Room151 4 weeks ago

    PWLB Consultation: Analysis straight from Dickens: Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it. Free and easy PWLB (“Marley” to his friends)[...] dlvr.it/RnmwLq pic.twitter.com/yFxcPrQqEG

    Room151 4 weeks ago

    Room151’s top stories from a momentous year: 2020 was the year in which local government grappled with Covid-19, funding strains, controversy over borrowing rules and the threat of financial collapse. It has been an exhausting and historic[...] dlvr.it/RnlpZg pic.twitter.com/g3myNyox6J

    Room151 4 weeks ago

    Tracy Bingham: 2020, a year best forgotten but also one of learning: Many will rush to erase 2020 from their memories but, writes Tracy Bingham, there were also many lessons about finance teams, strategic planning and leadership. 2020: A year we’d… dlvr.it/RnlpY2 pic.twitter.com/m7G1krrtCu

    Room151 1 month ago

    Settlement must address ‘precarious’ local government finances: Dan Bates crosses his fingers for “no nasty surprises” in this week’s funding settlement but argues the “bigger prize” is post-Covid financial certainty. Thursday (17 December) should be the… dlvr.it/Rnj9dG pic.twitter.com/KLKjjuBqJE

    Room151 1 month ago

    PWLB consultation: Big change on the way but there are ‘grey areas’ and opportunities: The consultation on PWLB borrowing has concluded creating a new landscape for funding property acquisition. Our experts look at the implications. Tracie Langley The… dlvr.it/RndRvJ pic.twitter.com/KEqXEBmEfq

    Room151 1 month ago

    2021: Better income outcomes?: Sponsored article: Investors should be mindful of structural challenges posed to income generation as a result of rapid thematic change. Jon Bell looks at the prospects for the coming year.[...] dlvr.it/RndRsw pic.twitter.com/TxVk8aXkMq

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story LGPS shared procurement, LPFA board, Notts development, Caerphilly turns service provider…
  • Next story Treasurers need elected members to focus on risk

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK