Economy September 18, 2013

Roger Martin-Fagg's Economic Update


There is good news and bad news. First the good- GDP grew by 0.6% in Q2 in all sectors - even construction showed some life (although it is still 15% below 2008 levels). Consumption spending improved and retail sales were up 2% in volume terms.

Now for the bad news – this mild upturn has been financed by borrowing and reduction in debt repayments, not by growth in wages. If, and it is a big if, employers decide that the upturn in confidence is sufficient to give above inflation wage awards, then the recovery will be sustained. But if not, then it will peter out by the end of the year.

The indicators of a sustainable recovery would be wages growing at 5%, retail sales volumes at 3%, and a surge in investment spending financed by the banking system.

UK_Disposable_Household_Income_Aug_13Bank Net Lending 

It’s still falling but at least the rate of decline is now only 1.2% year on year. Net lending contracted by 1.7Bn in June. 

In the USA however, banks are growing their lending at an annualised rate of 10%. And if household disposable incomes continue to grow, so will their economy.

The UK Housing Market  

  • The Help to Buy scheme has subsidised £1.3bn worth of house purchases since April
  • 7000 new houses have been reserved, about a third of sales for the period
  • The taxpayer is committed to £260m in lending
  • From January all borrowers for property up to £600,000 will be able to borrow with a 5% deposit

UK Living Standards

  • In 2102 real incomes fell 3%
  • The median income for twenty-somethings did not grow between 2002-2008
  • Pensioners have done best of all. 16% of the population are in relative poverty (defined as 60% or less than the median income in 2012) – an increase of nearly a million

The Eurozone

The Eurozone is still in the grips of an unresolved banking crisis, with the consequential contraction of credit. This will ensure low nominal GDP growth, low inflation, and little or no debt reduction.

Germany will not accept Eurozone bonds, so what can be done?


Japan is determined to end deflation. The central bank is lending unlimited amounts to commercial banks it the hope that a massive monetary stimulus will create inflation and some real GDP growth.


It appears that the new administration are beginning to implement some radical policies. They recognise that growth will come from entrepreneurial start ups, not state enterprises. Local Government is being reigned in and told to cut wasteful spending. 

These is a series of excerts from Roger's latest Economic Update- August 2013. For the full picture including further insights into UK/EU and USA as well as more information on Japan/ China/ and the state of play for exchange rates/ interest & inflation- you can download the full report.



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