A graph that can be found in the NIESR’s recent report on third quarter growth shows the current economic recovery set against historical benchmarks. The profile of the “great depression” of the 1930s was well on its way to recovery by this stage, and the turbulent and difficult times of the 1970s (remember the IMF was called in to pull Britain out of its funk) looks like a walk in the park in comparison. No wonder market valuations are depressed and below historical averages: there is some justification for this.
To highlight the distended nature of the recovery, UK industrial production fell 1.7% in the year to October and 0.7% in the month. Manufacturing rose a meagre 0.3% in the year and fell 0.7% in the month.
UK Markit/CIPS service sector PMI: rises to 52.1 in October – like the US diffusion index, the UK also experienced a decline in order backlogs and employment components. Incoming orders continue to grow but at a decreasing rate. It always worthwhile looking at the PMIs against the countervailing economic backdrop: in this case we have very high consumer debt, government austerity, weak manufacturing and an financial and economic stress in Europe). The PMI does not drive business. Furthermore, a marginally positive service sector PMI does not provide room for error in a low growth deleveraging environment: look at UK third quarter growth running at a mere 0.3%.