The Saturday Economist 26th January, Growth, Jobs and Borrowing

The Saturday Economist 26th January

Economics news – Good News on Employment offset by growth and borrowing
GDP Q4, the first estimate for GDP in the final quarter of the year was revealed on Friday. The good news, there was no growth last year but no evidence of a triple dip either. Equity markets reacted with a move into high ground with some slight pressure on bond prices evident. At least the portfolios are rebalancing, the economy is obviously not.
Year on year GDP in the final quarter was up by 0.1% on Q4 2011 and overall growth for 2012 was zero compared to 2011. Headlines this morning focus on the 0.3% fall compared to Q3 but Olympic ticket sales and repairs to an oil rig exacerbate the apparent downturn. No growth in 2012 as we expected but we still anticipate growth of just over 1% in 2013.
Details of the forecast for 2013 and beyond will be revealed in our February update. Plans to re balance economy towards net export growth and investment were always doomed to fail as we have explained from the outset. The march of the makers led to a 2% fall in manufacturing output in 2012. Service sector growth was up by 1.2% boosted by a 2% growth in government related activity. The economy is off track, stuck in the slow lane of economic growth. It’s growth but not as we know it. The trend rate of growth is now just 1% compared to a pre recession high of 2.9%.
The employment stats released on Thursday provided some relief. The claimant count fell in December by 12,000 to 1.557 million and a rate of 4.8%. The economy has created half a million new jobs over the last year, the private sector picking up the public sector job loss of some 300,000. Earnings growth in November is provisionally estimated at 1.5% (three month average). Compare this with inflation around 3% and the problem is evident, households are faced with the challenge of “real income” constraint.
Public sector  borrowing was £15.4 billion in December 2012 £0.6 billion higher than December 2011, £14.8 billion. Total debt at the end of December was £1.1 trillion 71% of GDP.  We expect government borrowing to be £128 billion in the current financial year, excluding the pension fund transfers and gilt coupon redemptions. This compares to £122 billion in the last financial year. So much for debt reduction. Revenues boosted by the VAT hike are flat due to a fall in income tax and CGT returns. Spending as a result welfare payments (up 6%) are up by a modest 3%. The calls for a rethink of policy for this mid term government will increase.
Oil Price Brent Crude closed at $113.28 from $111.89. We still expect oil to trade  between the $110 – $115 band for the first half of the year.
Markets Update – the FTSE closed up at 6284 from 6117 and the 250 closed into high ground at 13,136. The Dow also closed up at 13,895 from 13,535. For the FTSE an assault on the 6500 mark is underway.
UK ten year gilt yields closed up at 2.08 (2.04) and US rates closed at 1.95 from 1.84. The markets are calling the swing from bonds to bulls.
In currencies, the dollar closed steady up the Euro at 1.35 from 1.33, Sterling closed down against the Euro at 1.17 (1.19), and down against the Dollar rate at 1.58 (1.59). Sterling is remains on the slide.
That’s all for this week, don’t miss The Sunday Times and Croissants out tomorrow. 
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