The good economic news keeps on flowing despite the IMF

This week has seen record levels of employment, continuing good jobs growth numbers, and rising real wages. Yesterday the deficit figures showed it continuing to fall. Spending is under reasonable control, whilst tax revenues carry on rising.  In the second quarter of 2016 the deficit was down by £2.3bn compared to the same quarter last year.  Spending was up by 1.3% overall, including a large rise in capital investment. Revenue was up by more than 3%. This news was mainly pre the vote, when there was some slowdown of activity here in the UK and elsewhere in the EU.

April saw a large jump in Stamp Duty Land tax as people brought property just before the deadline for higher Stamp duties to come in on buy to let purchasers. National Insurance receipts are well up reflecting the good rate of new jobs growth. There are  no Petroleum Revenue Tax receipts, given the decline in Scottish oil output and the new lower price of oil.

Retail sales rose 1.6% in Quarter 2, after a rise of 1.2% in Quarter One of 2016. A number of important property deals have been signed since the Brexit  vote, including Wells Fargo announcing its intention to spend £300 m on a new office headquarters in the City. This followed hard on the heels of the purchase of the Debenhams store on Oxford Street post the vote for £400 m on a low yield.

The immediate fears of collapse and a big loss of confidence have proved misplaced. The IMF was forced to make a major revision to its forecasts, removing any sign of a UK recession post the referendum. The IMF now thinks the UK will be the second fastest growing advanced economy next year after the USA. This compared with their pre vote special forecast of a UK recession in 2017, with plunging share and house prices. What a difference a month makes! What a pity the IMF has become such an unreliable and erratic forecaster, meddling in member states politics.

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38 Comments

  1. Mark B
    Posted July 22, 2016 at 5:19 am | Permalink

    Good morning.

    Good news indeed. But are we mending the roof for the day when the sun is no longer shinning ?

    Bringing down the deficit is not bringing down the national debt, which is still too high. We also have to factor in the falling pound and trouble elsewhere (eg Italy)’s banks. The future is not always so bright and rosy but it is nice to have something good for a change.

    • Lifelogic
      Posted July 22, 2016 at 6:10 am | Permalink

      Indeed, the national debt is still getting larger by the day. We still have a very large trade deficit. We are not repaying the debt as Cameron’s government totally falsely claimed. Government is still far too bloated and inept. The NHS and the education system do not work, indeed most of government does not work.

      Now we are leaving the EU can we please return to some sensible & efficient refuse collections please?

      • agricola
        Posted July 22, 2016 at 9:32 am | Permalink

        I think that rubbish collection in the UK with it’s insane complexity and varying infrequency must be down to penny pinching ineptness among local authorities.

        Here in Spain it is collected every day in summer and every other day in winter, either in plastic bags from your front door or from collection points. It is inclusive of bagged garden rubbish and bagged domestic rubbish. This seems sensible and efficient despite Spain being a keen member of the EU. Like most things left to various arms of government in the UK there appears a genetic inability to get it right.

        • Lifelogic
          Posted July 22, 2016 at 1:37 pm | Permalink

          Yes but influenced by daft EU recycling laws and landfill rules & taxes. Probably just ignored in many places. The rubbish collection in Italy (near Verona) where I was recently was equally mad. Millions of hours of people’s time wasted in complying with nonsense.

        • fedupsoutherner
          Posted July 22, 2016 at 2:33 pm | Permalink

          Spain do not follow EU regs on many things. The UK follows every command to the T. Will some of this regulation be forgotten when and IF we leave?

    • JohnF
      Posted July 22, 2016 at 10:59 am | Permalink

      “Good news indeed”

      Post-Brexit data is showing anything but good news. In fact we look to be heading fora worryingly sharp slowdown.

  2. Mark Watson
    Posted July 22, 2016 at 6:00 am | Permalink

    Thanks John. Its still early days of course and as we know the IMF is often wrong! Still time for it to go a bit pear shaped especially if the project fear crew keep it up.

  3. Lifelogic
    Posted July 22, 2016 at 6:04 am | Permalink

    The new 3% stamp duty on top of 12% rate ( which is already is absurdly high as a turnover tax) damaging mobility hugely. It ends up as a tax on tenants of perhaps 10% on their rents – even more with the absurd new interest deduction rules.

    Both these need to be undone as indeed do most of Osborne’s endless idiocies.

    The economy can do far better still. We need some real completion in banking, far less red tape, lower tax rates, cheaper non greencrap energy, fewer absurd market distortions and far less government in general. Just get the government out of the way. They are, as usual, the problem not the solution.

    Cancel HS2, undo the climate change act, get on with the runways, fire all the many parts of the state sector that do nothing useful or worst inconvenience the productive. Get some new roads and bridges built.

    Just get on with it and stop all this endless dithering.

    • fedupsoutherner
      Posted July 22, 2016 at 2:34 pm | Permalink

      Lifelogic. did you think of running for PM? Your ideas would certainly work for most of us!!

      • Lifelogic
        Posted July 22, 2016 at 7:38 pm | Permalink

        I could never be a politician as:-
        I rather like saying what I honestly think, rather than what is politic at the time. Telling the truth is not a good way to make yourself politically popular.

        I have too many complex business interests and would certainly not want opponents or journalists poring over everything until they found something to attack me over.

        I no longer live in the UK and so would doubtless be accused of tax avoidance. This as I rather prefer not to pay millions in tax for every little in return. I believe that I use the money to do rather more good than the UK government are ever likely to do.

        Legal tax avoidance is a very moral activity providing you spend/invest/use the money well, society is rather better for it.

  4. Jerry
    Posted July 22, 2016 at 6:37 am | Permalink

    Most of these figures deal with a period pre Brexit (vote) so tell us nothing what so ever about the post Brexit vote period…

    • zorro
      Posted July 22, 2016 at 10:41 am | Permalink

      ‘Always look on the bright side of life….. (whistling)’…..

      zorro

  5. Dioclese
    Posted July 22, 2016 at 7:10 am | Permalink

    Of course, it would be churlish of me to suggest that the change of direction from the IMF had anything to do with severing the relationship between La Garde and Osborne wouldn’t it?

  6. Antisthenes
    Posted July 22, 2016 at 7:40 am | Permalink

    “What a pity the IMF has become such an unreliable and erratic forecaster, meddling in member states politics.”

    Indeed that is what these forecasts and predictions from these experts, the MSM, politicians and vested interests are all about. They will not admit that forecasting the future is a fantasy science for the simple fact that their prognostications are aimed at shaping the future, not accurately telling it, to satisfy their own interests. It is possible to learn from the past to anticipate future trends but not with any certainty and mostly they will not be accurate. However accurate enough to plan with the contingency to quickly amend those plans if conditions do not turn out as forecasted.

  7. alan jutson
    Posted July 22, 2016 at 8:22 am | Permalink

    After the initial shock for the Financial Services Experts who had put everything on Remain, things seem similar to normal to me, of course it is still early days to make any sort of real forecast, but then any forecast/result would have to take into account all sorts of criteria apart from Brexit.

    Only after many years will we really be able to see if our exit from the EU has been positive or negative, but certainly things are looking reasonable at the moment.

    I wonder what thoughts are running through the minds of Cameron, Osbourne and a few others at the moment !

  8. acorn
    Posted July 22, 2016 at 9:20 am | Permalink

    JR, don’t let Chancellor Hammond fiddle with the deficit Osborne style. The deficit, if anything, is too small at the moment and the economy is slowing. We are nearing the point where the non-government sector will be dictating the size of the deficit.

    There is some good stuff coming out of ONS at the moment. Have a look at http://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/quarterlysectoraccounts/quarter1jantomar2016 “Quarterly Sector Accounts, particularly part 5 figure 6. Basically, every domestic sector is borrowing (spending), to pay for the imports from the Rest of the World (RW), that is lending (saving) Pounds Sterling.

    Also, on the same flow of funds theme have a look at http://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/economicstatisticstransformationprogramme/flowoffundstheinternationalcontext . Particularly part 4 figures 1 & 2. This shows how dangerously out of balance the UK economy is. We have Spiv City financial corporations that are 1,300 percent larger than the UK GDP. You can see why the UK was so badly hit by the GFC of 2008 and Mr Darling having to bail them out with several guns to his head.

    • Lifelogic
      Posted July 22, 2016 at 1:42 pm | Permalink

      The deficit is too small! Well if we really are to borrow more get it to the private sector not the state sector. They at least with do something useful with it. The state sector is hugely bloated, overpaid and delivers little.

      The NHS is a complete joke, or would be if it were not killing so many people!

    • Jack
      Posted July 22, 2016 at 1:42 pm | Permalink

      If only JR would be out there fighting for huge payroll tax cuts, rather than praising the deficit getting smaller.

      The budget deficit needs to be much larger than it currently is, since the current account deficit has been acting as a major demand leakage for a long time now.

      Government Deficits – Net Imports = Net Private Saving

      Or put another way: Government Deficit = Non-Government Surplus

      Those who want the government to run a surplus, by definition want the private sector to run a deficit and be drained of its savings. The largest depressions in U.S. history have all been preceded by the largest budget surpluses.

      • acorn
        Posted July 22, 2016 at 5:02 pm | Permalink

        Much agreed Jack; but, on this site, your comments will not be understood by all but a very few. This blog still think the government has to borrow its own money, before it has any to spend. Likewise, they still think High Street banks, have to have deposits before they can lend.

        The following three MMT prime questions, will come back with three “yes” answers on this blog, when it should be three “no”.

        1. Does the government need to receive tax revenue before it can spend?
        2. Does the central bank need to receive reserve deposits before it can lend?
        3. Do private banks need to receive demand deposits before they can lend?

        Reducing payroll taxes (NI), tends to increase employer profit margins not employee wages. Government spending increases (fiscal stimulus) tend to act faster and with greater effectiveness, than tax cuts. The latter, act slower and tend to get saved more by Households.

        • Jack
          Posted July 23, 2016 at 12:38 am | Permalink

          I think there should be payroll tax cuts to help people meet their private debt payments. It seems to me that directly supporting those who work for a living is the way to go, after all they’re the ones producing the goods and services, and should be able to consume that output rather than struggle to get by as so many do now.

          It’s also why I oppose higher interest rates; why should someone get risk-free interest payments from the government for doing nothing? But we tolerate it because we think higher rates “cool down” inflation, when in fact they worsen it.

          I agree though that payroll tax cuts aren’t perfect, so we also need a lot more government spending. I just hope JR will push for a decent fiscal stimulus package and a permanently zero BoE bank rate. I’m sure we could come up with a conservative pro-market MMT fiscal adjustment to support demand.

  9. Mark
    Posted July 22, 2016 at 9:36 am | Permalink

    Perhaps the new Chancellor will offer some better forecasts through the UK delegation to the IMF for them to parrot. I believe former Treasury minister Priti Patel, who has an insight into how these things work, was all too aware of what happened under the previous Chancellor, and called him out on it during the referendum campaign.

  10. davies
    Posted July 22, 2016 at 10:27 am | Permalink

    When international bodies make predictions I am guessing they use a country’s treasury forecasts as their sources without checking their assumptions…. we all know about this.

    I have felt for a long time that BREXIT is a convenient distraction. As long as trade and capital routes stay roughly the same with tariff free and “equivalent” county access so customs don’t slow anything down, there is no hindrance to the passporting system which is a 2 way interest for the UK to access London and vice a versa I cant see what the fuss is about.

    The real elephant in the room are the flaky Eurzone banks with their huge bad debt balance sheets – this is the thing in my view that could cause the real problems rather than BREXIT itself.

  11. CHRISTOPHER HOUSTON
    Posted July 22, 2016 at 10:43 am | Permalink

    IMF’s Christine Lagarde is amazed the British ignored her own and everyone’s experts. The Remainers, particularly those of the political and economical constipated Labour Party are also dumbfounded. They are so used to tribal chanting to what was a gullible or plain acquiescent electorate.
    One ex-senior politician of the Labour Party remarked with a confused and bemused: “people are doing everything opposite”.
    They cannot get it through their heads…something has changed in the general house that is Politics. Everyone doubts everything. Within and without political parties. The “Leader-on-a-pedestal” with banging of drums is not working anymore. The British KNOW and are believing in themselves once again.

  12. JohnF
    Posted July 22, 2016 at 10:55 am | Permalink

    John

    Most of the “good news” is based in pre-Brexit data. The July Markit PMI survey, however, suggests a very sharp slowdown for the UK is on the cards. Despite the insistence that we are unlikely to have a recession it now looks as though a recession is more likely than not. I voted Leave but I’m not comfortable with the Brexit boom stories and I’m becoming increasingly concerned that the inevitable shock may be be deeper and longer lasting than I thought before the referendum.

    Reply NO evidence for that from the real economy. It will be fine

  13. Steve D
    Posted July 22, 2016 at 11:01 am | Permalink

    The good news keeps flowing – if you ignore the bad news.

    It is a shame that you’re not a little more objective and balanced in your commentary.

    This headline on FT.com today – PMI survey signals sharp downturn in UK economy – findings show activity plunged in the weeks following vote to leave EU.

  14. Denis Cooper
    Posted July 22, 2016 at 11:20 am | Permalink

    Whoops, spoke too soon:

    http://www.telegraph.co.uk/business/2016/07/22/ftse-100-slides-but-pound-gains-ahead-of-uk-manufacturing-and-se/

    “Pound plunges as ‘dramatic deterioration’ in UK economy stokes Brexit recession fears”

    Funny thing is, that article includes this chart of the worrying PMI:

    https://twitter.com/mryan815/status/756416007745499137/photo/1

    which seems to show that the deterioration actually started about two years ago.

    Not just a month ago when we voted to leave the EU, or even five months ago when Cameron announced that the referendum would be in June.

  15. Rk
    Posted July 22, 2016 at 11:30 am | Permalink

    Will your next post address the PMI survey which seems pretty negative…

    Given your bullishness on economic prospects… If the UK slides into recession and EU doesn’t… would that cause you to rethink?

    reply Yes, I will, and no we are not sliding into recession

  16. James Winfield
    Posted July 22, 2016 at 12:12 pm | Permalink

    Totally ignoring the Purchaser Manager’s Index which has dropped to 47.1 – the lowest since 2008.

  17. Mark Watson
    Posted July 22, 2016 at 12:28 pm | Permalink

    Not so good now with the shocking PMI figures this morning.

    Reply This was a confidence survey conducted hastily amongst CEOs etc of large corporates just after the vote. It doesn’t mean the economy is in recession!

    • JohnF
      Posted July 22, 2016 at 5:30 pm | Permalink

      ” Reply This was a confidence survey conducted hastily amongst CEOs etc of large corporates just after the vote. It doesn’t mean the economy is in recession! ”

      John – I accept that sentiment was perhaps a bigger factor in this recent survey than in more normal times but Markit data has proved to be a good predictor of future economic conditions.

      Reply It has predicted 3 of the last one recessions

      • JohnF
        Posted July 22, 2016 at 8:58 pm | Permalink

        ” Reply It has predicted 3 of the last one recessions ”

        That’s a bit unfair. The PMI dipped slightly below 50 in 2012 but never indicated recession. It began to slump significantly in 2007 – about 6 months before the 2008 crash. Those were the only occasions – apart from July 2016 – that the index has dipped below the 50 (neutral) mark.

        Reply And in dot com bubble

  18. CHRISTOPHER HOUSTON
    Posted July 22, 2016 at 1:24 pm | Permalink

    The word UNCERTAINTY is hackneyed already.

    Certain male Corporate “leaders” are beginning to sound like a househusband who is frantically unsure when his wife goes into the office that she is not doing more for the company Chairman than sharpening his HB pencil.

    Have their business careers and progress ever in reality been CERTAIN? If so, then we may as well have had nationalised industries in the times of such certainty and made money-to-burn capital investments for the future hundred years.

    Business people, should stop being mardy, wake up, stop obstinately trying to prove their previous Remain position, by actively refraining from investment. Foreign firms are not so UNCERTAIN about the UK and see many opportunities whilst British business leaders are contemplating their navels.

  19. ian
    Posted July 22, 2016 at 1:50 pm | Permalink

    Would it be funny if the USA put interest rates up next week.

  20. lojolondon
    Posted July 22, 2016 at 1:51 pm | Permalink

    John, against the your blog entry, this is the main headline on the Biased BBC – http://www.bbc.co.uk/news/business-36864273 I really think that the BBC has done more damage to Britain than anyone, perhaps even including the last Labour government. We are way overdue to stop the TV Tax!

    Reply Yes, it is silly reporting

  21. michaelmph
    Posted July 22, 2016 at 2:04 pm | Permalink

    You don’t get that impression from the lead story on the BBC News website today. Shocking negative reporting by Auntie BBC.

  22. ian
    Posted July 22, 2016 at 3:48 pm | Permalink

    When i look at market data, this morning it look like complete collapse taking place, Stirling really looks bad, could fall to a min of 1,15 with more to come, if stirling can hold above 1.17 in the weeks and months it would be doing really well but fear that 1.04 could be on the cards against the dollar.

    As people with money and power around the world gang up on brittan to get the people in middle england to change their minds about coming out of europe, the pressure is going to be intense specially with the elites media leading the way.

    Will the people be able to take the pressure as the government now move to hire lots expensive experts to drag out the process of coming out as long as they can.

    Inflation going to go right up for middle england and the poor taking the hit as companies pull back to put the pressure on as well but it will not stop the rich assets from going up like shares and housing and assets in the USA, more good times for them.

    Of cos all this might not happen but the likely hood of the elites and bankers letting brittan pull out of europe and crashing the idea of a one world government without them trying to change the result is slim.

  23. Lindsay McDougall
    Posted July 22, 2016 at 7:35 pm | Permalink

    So why are we contributing financially to the IMF? Why are we members?

  24. turboterrier
    Posted July 22, 2016 at 8:58 pm | Permalink

    What a pity the IMF has become such an unreliable and erratic forecaster,

    Bit like the BBC then?

    Both parties should spend time reading the international financial reports before opening their mouths. As my old man used to say everyday “the whole world revolves around economics and the politicians have never really understood that” There has been more than enough warning signs in the previous twelve months highlighting the way the Union was and is heading

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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