It’s Wednesday and also a holiday period, so just a few things today. First, I discuss a research paper that has concluded that central bankers have been using the wrong model for years which has resulted in flawed estimates of the state of capacity utilisation, and, in turn, created excessive unemployment. Second, we have a…
Britain continues to defy Project Fear
Regular readers will know that I have been following the path of the British economy post-Referendum in 2016 to see whether the doomsday that the Remainers predicted was likely. It became colloquially known as ‘Project Fear’ as mainstream economists, so-called progressive economists who had their snout in the Labour Party as advisors (and we know where that took the Party), institutions like the Treasury and the Bank of England, all pumped out a sequence of terrible predictions about what would happen to the British economy should the Leave vote succeed. The predictions started in the lead up to the June vote. Immediate recession was forecast. That didn’t happen. Then new forecasts came out – with longer term disasters predicted. As each prediction horizon passed without disaster, the predictions morphed, new horizons were introduced, more nuanced analysis was presented. And, as nothing much has happened to ratify their fears (and lies), the Project has abated somewhat. The latest data shows that the Project is as moribund as it ever was.
Private sector confidence in Britain rising
Since the Referendum, the British economy has grown by 5 per cent in real terms (up to the September-quarter 2019). The EU28 has grown by 6.8 per cent but nations such as Italy have grown by 3 per cent.
The US has grown by 8.4 per cent and Australia by 7.5 per cent. Japan has grown by 4.1 per cent.
It is reasonable to conclude that the UK’s slightly slower growth rate when compared to the EU28 could be due to the increasing uncertainty over the three or more years since the Referendum, particularly as the parliamentary process seemed to be stuck going nowhere before Boris Johnson became PM and found a way to get a new election on the issue.
And don’t be fooled by the claims that the December election was about other things than Brexit. That was what people were voting on.
Otherwise, how could they reject a progressive Labour Manifesto, albeit clothed in neoliberal macroeconomic nonsense courtesy of the failed advisors, when the nation had been ravaged by 9 years of Tory austerity?
The vote was the ‘peoples’ vote’ that the Remainers had wanted. The problem was they seriously misunderstood how detached they are from the mainstream concerns of the voters in the Midlands and the North.
We can obviously dismiss what comes next as an expression of ideology – the corporates holding out until they got what they wanted and then resuming business as usual – but the latest data from the – IHS Markit / CIPS Flash UK Composite PMI (released January 24, 2020) – shows that:
1. The “UK Composite Output index” is at a “16-month high”.
2. The “UK Services Business Activity Index” is at a “16-month high”.
3. The UK “Manufacturing Output Index” is at a “16-month high”.
4. The “UK Manufacturing PMI” is at a “16-month high”.
What does that all mean?
The PMI data is derived from surveys of “panels of around 650 manufacturers and 650 service providers”, which are appropriately stratified (by size of company, sector, contributions to GDP) to be representative and scalable.
The Composite Output Index is “calculated by weighting together comparable manufacturing and services indices using official manufacturing and services annual value added.”
The Manufacturing PMI “is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).”
What the data is showing is that all the major economics aggregates that pertain to output across sectors and employment has turned upwards and rather significantly.
The IHS/CIPS data shows that:
January data … highlighted a decisive change of direction for the private sector economy at the start of 2020. Business activity expanded for the first time in five months, driven by the sharpest increase in new work since September 2018.
The data shows:
1. “rising demand for both manufacturing and services, suggesting business is rebounding …”.
2. “uncertainty ahead of the general election has started to ease, encouraging more spending and helping push business expectations of future growth to its highest since mid-2015.”
3. “Hiring has also picked up”.
4. “The uplift in sentiment about the outlook hints at even better growth to come …”
5. “Prospects around the future improved through an injection of confidence not seen June 2015.”
There was also positive survey data coming out of Britain in January.
Accounting firm PwC released their – 23rd CEO Survey – UK findings – (January 21, 2019) on the eve of the Davos talkfest.
1,581 CEOs were interviewed (83 countries) including 126 CEOs in Britain. The survey was conducted before the December election.
The results show that global uncertainty was problematic for corporate investment in the UK. This uncertainty was not confined to the Brexit delays.
The survey shows that Britain was still seen as an “attractive growth prospect” for investment as it was in 2015, despite the uncertainty.
The number of US-based CEOs who thought the UK was an attractive “growth target” as risen significantly over the last 12 months.
European-based CEOs are also “more positive” about the UKs prospects than they were five years ago.
The UK is seen as “the fourth most important target for companies looking for markets (Source).
The spokesperson for the PwC report was quoted as saying:
The findings provide timely perspective on the UK’s standing as a place to invest and do business. Viewed against the turbulent global backdrop, the UK is a beacon of relative stability …
You can’t replicate natural advantages like our timezone and location between the US, Asia and the rest of Europe, but more than that the UK is a fair and trusted place to do business.
Try marrying that narrative together with the way Project Fear has represented Britain to the rest of the world. Instant divorce!
If you then juxtapose the data from the corporation (some of it is hype) with the latest employment data (actual facts) released by the UK Office of National Statistics (January 21, 2020) – Labour market overview, UK: January 2020 – we see that the:
1. “UK employment rate was estimated at a record high of 76.3%, 0.6 percentage points higher than a year earlier and 0.5 percentage points up on the previous quarter.”
2. “The UK unemployment rate was estimated at 3.8%, 0.2 percentage points lower than a year earlier but largely unchanged on the previous quarter.”
3. “The UK economic inactivity rate was estimated at a record low of 20.6%, 0.4 percentage points lower than the previous year and the previous quarter.”
4. “In real terms (after adjusting for inflation), annual growth in total pay is estimated to be 1.6%, and annual growth in regular pay is estimated to be 1.8%.”
This data doesn’t tell us about job quality.
But the accompanying data release (January 21, 2020) – Employment in the UK: January 2020 – shows that:
1. Employment has grown by 359,000 over the 12 months to November 2019.
2. “Increases in the number of full-time workers have been the main driver of increases in employment in recent years, while the number of part-time workers has been relatively flat in comparison”.
3. “The rate of growth for women working full-time has been consistently higher than for men over the last few years, with women being the main drivers of the strong increase in full-time employment.”
4. “the estimated number of people unemployed for up to six months fell by 146,000 to 804,000, but has been relatively stable for the last two years”.
5. Since June 2016, the proportion of people in employment with zero hour contracts has fallen from 2.9 per cent to 2.7 per cent. The largest falls are in the prime-age cohorts (25-49 years) and women.
I am not implying that the labour market situation in Britain is desirable.
We are just looking at directions of change in this blog post.
And those changes are working against the predictions of Project Fear.
I know that the Project Fear will now concentrate on scary stories about the likelihood or otherwise of getting a ‘trade deal’ with the EU as their next beachhead.
The UK Guardian has been one of the major media proponents of Project Fear and reported on the PMI and labour market results in the article (January 24, 2020) – Pressure eases on Bank to cut interest rates as UK economy improves:
Despite the rise in confidence among firms, economists have warned that business investment and growth could remain muted in 2020 if the prime minister appears to be comfortable with ending the Brexit transition in December without striking a trade deal with the EU.
As I said, the Project is shifting to the EU trade deal talks.
Well think about what Madame Lagarde has recently said.
In 2016 in the lead up to the Referendum, she predicted that Britain would quickly sink into recession if the Leave vote succeeded.
Well fast track to January 23, 2020 and Madame LG is at Davos talking about Brexit in a totally different light.
She told the audience that Europe is now fearing “a cliff edge” at the end of 2020 if they play cute with Britain over the trade negotiations.
Brexit is a little bit less uncertain, but we still have that possible cliff edge in December of 2020.
We don’t know exactly what the trade relationship will be.
And it’s a big partner for the euro area, so that’s certainly a question mark.
It is what I have been saying all along.
Britain runs a trade deficit with the rest of the EU.
The German car manufacturers, for example, already reeling from their criminal behaviour with respect to emissions and their flawed decisions to invest heavily in diesel, will not be too happy if they lose market share in Britain to, say the Koreans and the Japanese.
Moi? I am looking forward to walking through British immigration more quickly in February as the EU citizens queues get the usual ‘foreigners’ treatment.
And the claims by Michael Heseltine that official plans to celebrate the exit this Friday just “rub remainers’ noses in it” (Source) are ludicrous.
After 47 years of compromised sovereignty, why shouldn’t Britain celebrate regaining its independence?
A journey down memory lane – just so you remember!
Here is a collection of blog posts I have written about the Brexit carry-on. There were more but this will suffice.
You cannot say I have been inconsistent – nor inaccurate.
Bank of England backtracks on its doomsday Brexit scenarios (March 18, 2019).
Must be Brexit – UK GDP growth now outstrips major EU economies (January 14, 2019).
The Brexit scapegoat (January 7, 2019).
More Brexit nonsense from the pro-European dreamers (December 27, 2018).
British data confirms strong FDI continues despite Brexit chaos (December 12, 2018).
When 232 thousand becomes 630 – quite, simply horrifying Brexit losses (October 1, 2018).
Brexit doom predictions – the Y2K of today (August 28, 2018).
Brexit propaganda continues from the UK Guardian (July 4, 2018).
How to distort the Brexit debate – exclude significant factors! (June 25, 2018).
The ‘if it is bad it must be Brexit’ deception in Britain (May 31, 2018).
The Europhile Left use Jacobin response to strengthen our Brexit case (May 22, 2018).
The Europhile Left loses the plot (May 1, 2018).
The facts suggest Britain is not as reliant on EU as the Remain camp claim (April 16, 2018).
Europhile reform dreamers wake up – there will be no ‘far-reaching’ reforms (March 12, 2018).
Britain doesn’t appear to be collapsing as a result of Brexit (December 13, 2017).
British productivity slump – all down to George Osborne’s austerity obsession (October 17, 2017).
Britain’s labour market showing no Brexit anxiety yet (May 30, 2017).
Why Britain should not worry about Brexit-motivated bank relocations (May 16, 2017).
Austerity is the problem for Britain not Brexit (January 9, 2017).
The British reality defying the ideologically-based gloom and doom (November 29, 2016).
Mayday! Mayday! The skies were meant to fall in … what happened? (August 24, 2016).
When journalists allow dangerous economic myths to pervade (June 28, 2016).
Why the Leave victory is a great outcome (June 28, 2016).
Britain should exit the European Union (June 22, 2016).
MMTed Masterclass – London, February 22, 2019
As part of the MMTed initiative, I am holding an MMT Masterclass in London on Saturday, February 22, 2019.
The class will run from 14:00 to 17:00.
The syllabus will be covering basic MMT concepts and the material will be accessible to all. However, it will be an academic-oriented presentation meaning that I want to advance educational goals as a priority.
This is about going back to school!
The Masterclass will be held at:
2 Northdown Street, King’s Cross
London, N1 9BG
This is a small venue in the heart of heart of King’s Cross, London.
There is space for 65 people to attend.
The venue has a licensed bar for refreshments. No catering will be provided by MMTed.
Here is a map to guide you to the venue:
There will be a small charge – £5 – for attendance, which will help cover the costs of the venue hire.
Tickets can be purchased via the eventbrite site in the coming week.
Alternatively, if you wish to secure a spot in advance, you can write to me and I will send you details of how to pay and guarantee a seat.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.
This Post Has 13 Comments
Looking forward to seeing you on the 22nd of Feb. I will be coming from Geneva to attend !
Hmmm…. those look like rather hard seats to sit on for 3hrs – good thing there’s a bar!
I’m afraid I will have to miss MMTed on 22nd Feb (not because of the seating!) but look forward to coming along to the GIMMS event on the 20th instead.
I’m finding these Brexit posts a tad weird now and not really all that constructive. The economic performance facts are what they are (project fear was indeed a lie), yet like in the U.S. all this is doing is planting a confirmation in the heads of Tory voters/Trump voters that right-wing is definitely the way to go now and the future for economic growth.
I was in Britain just after the election and all this has led to is a rejection of ideas for public spending policies and a full acceptance that if Britain is to ‘recover sovereignty’ that austerity and misery for a while is the price to pay. There’s not much sign of a turn to sensible economics now or in the foreseeable future. So why are you cheering so loudly? If a neo-lib government end up presiding over the feeling of economic resurgence isn’t that rather an own goal for people promoting MMT? I’m puzzled.
Also the queue for EU countries into the UK is always just as long anyway. I sometimes stand in the one for all other passports.
Like Ferdinand, I find this post a little disconcerting. I understand the argument about monetary sovereignty and agree that it was, or rather should be, the stance that enables a return to consideration of socially responsible fiscal policy as a primary tool of the government. However, it won’t be, because the Tories are in control and Labour has probably wounded itself to the point of being ineffective for perhaps another decade. Neo-liberal economic theory will return to its hallowed place in government, the population will suffer, and any coherent opposition will have to regroup and reform.
My concerns were similar to yours but to be fair to Bill, I think he is ‘cheering’ on the fact that the remain predictions were clearly wrong and have been consistently wrong and given the Remain camp were offering very little criticism of the EU and its monetary structure I guess Bill’s reason for any ‘cheering’ (if that’s the right word) are there.
Bill makes it clear he’s nOt supporting the high employment figures from a qualitative angle, indeed, I think Bill made some calculations about UK ‘high employment’ that put the reality of unemployment at nearer 8-10% when taking into account underemployment (can’t remember actual blog so my figures might not be quite right). The OECD has also computed unemployment in the UK to be closer to 13% taking into account underemployment and people who are disabled who might want part-time work:
‘The study found that more than 3 million people are missing from the headline unemployment rate because they report themselves as economically inactive to government labour force surveys.
It said the true unemployment rate should rise from 4.6% to 13.2% of the working-age population not in education. The OECD made the estimate by creating an adjusted economic activity rate, which removes students, retirees and people caring for family.
The adjusted rate accounts for inactive people who may be willing to work or have stopped looking for work for economic reasons; such as people with health issues or a disability who could work with support, those who take care of relatives due to a lack of access to care facilities, people who have taken early retirement, and people who think there are no available jobs.’ (https://www.theguardian.com/business/2019/oct/17/unemployment-figures-should-be-millions-higher-says-research).
The fact that we have a Tory Government here is clearly a disaster for millions of people due to zero policies on social care and utter indifference to welfare claimants whose health and mental well-being is harmed by the absurdities of Universal credit. Also, house building plans (plans being a too sophisticated word) do not remotely address the need for more social housing and will undoubtedly favour dodgy developers who, for years, have been minimising the social component and sometimes eliminating entirely. The situation in cities like Manchester is dire: https://www.theguardian.com/cities/2018/mar/05/british-cities-developers-affordable-housing-manchester-sheffield
Despite this, Johnson is predicting the UK becoming ‘trail-blazing’ after January 31st with housing unaffordable, average unsecured debt at £15,000, 22% of our people in relative poverty and 34% of children in relative poverty. perhaps it will be ‘trailblazing’ for more rent-extraction, after all, as soon as the election result was announced, masses of money poured into London properties once the fear of a Labour Government was out of the way.
It seems like that it is reasonable to take whatever economists say and do the opposite.
I think there are multiple problems arguing that the GE was a “referendum” for Brexit.
The UK has a FPTP system, and usually this produces substantial majority Governments with minority vote shares. In this case 43 per cent voted conservative. Arguing that this represents a vote for Brexit is problematic because there is a high degree of partisan voting in the UK, which is where Labour came unstuck.
Governments are built on swings in marginal constituencies
The remain/leave split has stayed around 50/50 over the three or so years. A majority of conservative voters are in favour of leave. I think its around 65 percent, and around 55 percent of labour voters are remainers.
The main problems for the Labour party was that they should never have agreed to GE. Their campaign was chaotic and disorganised, there was no clear message. Jeremy Corbyn was extremely unpopular amongst those core voters, and they spread themselves too thinly, and after planning to fight in marginals to win, they found themselves fighting what were meant to be safe seats. And never mind the media being hideous.
Dear Ferdinand. Wayne Turner and Simon Cohen (at 2020/01/28 at 12:15 am and otherwise)
Project Fear remains. The next 11 months as the ‘trade deal’ is negotiated it will dominate the media and politics in the UK.
The problem is none of its proponents will admit they got that part of the story wrong. They are out there telling the Labour Party what to do next.
A recognition that it was wrong should influence the Labour leadership choice. But it won’t because no one will take responsibility for being part of the Project.
I don’t celebrate Tory dominance. But if full-time jobs are on the rise and businesses are not closing their doors then the life of workers is presumably better in material terms than if the opposite trends were occurring.
Tory government or otherwise.
The left is captured by identity politics and no-growth strategies anyway. It is no alternative to Tory rule at the moment. It can change of course but it hasn’t yet. But it will. And then the identity issues will merge with the working class needs like when the miners and lgbt community joined forces.
Bill wrote:- “Project Fear remains. The next 11 months as the ‘trade deal’ is negotiated it will dominate the media and politics in the UK”.
Exactly. As the quote from the cited Guardian article demonstrates, already – less than one month into the New Year – it has already started.
We are going to see yet another re-run of the three-and-a-half year attempt by the Remain faction to subvert the original outcome of the “people’s vote” (despite their clamour for it to be repeated having blown up in their faces). It will now take the form that a trade agreement with the EU MUST be reached, on *any* terms”.
Their position will be tantamount to saying to the EU, in so many words :- “let’s not bother with negotiating; just state your terms and we’ll sign on the dotted line, no ‘ifs’ or ‘buts'”.
It has effectively been their fall-back position all along that if they couldn’t get the Referendum result reversed the next-best outcome would be that Britain remained tied in all respects to EU diktats – including all future ones – just as if we hadn’t left. That was the motive behind the last parliament’s repeated votes to tie the then-government’s hands so tightly behind its back as to make it impossible for it (or any other government come to that) to negotiate even a halfway-decent Withdrawal Agreement. It did that by forcing “no deal” to be taken off the table.
Now that same faction will bend every sinew to repeat their coup – which was what it was.
I trust that this time around that salutary lesson in how NOT to conduct a negotiation will have been well and truly taken to heart by all the members of the present government AND by the great majority of their backbenchers. If not we are heading for that ultimate catastrophe:- the worst of all worlds.
This government must continue to say “we finally leave on 31/12/2020, with or without a trade deal”, and *mean it*. That demands having in readiness in good time all the measures that would need to be in place for exiting on WTO terms on 1/11/2021.
“for exiting on WTO terms on 1/1/2021” – of course.
And yet now Javid announces a continuation of spending austerity. “We have been elected with a clear fiscal mandate to keep control of day-to-day spending. This means there will need to be savings made across government to free up money to invest in our priorities.”
To “free-up money”, the old neoliberal cry. Let’s see how that affects businesses and full-time jobs. Unfortunately under Tory leadership the UK doesn’t look like it’s going to be a model example of what sovereign currency issuers outside the EMU can do to organise a properly socially-progressive economy. What a wasted opportunity.
In better news the government did at least take Northern Rail into national ownership.
I wonder how much influence Euro business like the German car industry will have in negotiations? If you follow Wolfgang Streeck’s line of thought (and I do) then the most important outcome for the EU elite and their neoliberal empire will be to ensure poor outcomes for the UK. From their perspective the very worst thing that could happen is that leaving the neoliberal trading-block leads to a thriving economy, as it might encourage other members to leave. If that is their objective function it may be seen as perfectly rational for them to inflict conditions which will hurt both sides economically so long as the greater damage is done to the UK.