Tag: #chartoftheweek

ICAEW chart of the week: Money for nothing

22 May 2020: The UK Government is being paid to borrow money, with first negative yield gilt

Cash invested £1,026.35 (nominal value £1,000, premium and interest £26.35). Cash returned £1,026.25 (7 coupon payments £26.25, principal repayment £1,000). Net return -£0.10, yield -0.003%.

The news this week that the UK Government issued debt with a negative interest rate is the subject of the #icaewchartoftheweek. This shows how purchasers of the 0¾% Treasury Gilt 2023 at an auction on Wednesday 20 May accepted a negative yield of -0.003% on their investment.

At an average price of £102.388 for each £100 gilt or £1,023.88 for ten gilts, someone buying gilts at the auction would have paid £1,026.35 to the Government for each £1,000 of nominal value purchased, once £2.47 for interest already accrued payable with the bid is included. 

That investor will receive less money back, with 7 semi-annual coupon payments of £3.75 before repayment of the principal of £1,000 on 22 July 2023 adding up to £1,026.25, a net loss of 10p.

This is a return of just under -0.01% over 38 months on the £1,026.35 invested, equivalent to an annualised yield of -0.003%.

This is only just negative, and the UK Government still needs to pay to borrow for longer periods, with yields on 10-year and 30-year gilts still in positive territory at around +0.24% and +0.63% respectively.

Although this gilt auction is a milestone, being the first fixed-rate government bond with a duration over two years to be issued at a negative yield in the UK, this is not a new phenomenon in the world of government borrowing. For example, with 10-year and 30-year government bonds currently yielding -0.49% and -0.07% respectively, Germany’s €156bn of projected borrowing this year should end up reducing its interest bill!

Whether this presages a similar situation in the UK is unknowable, so we are not yet at the stage of money for nothing.

This chart of the week was originally published by ICAEW.

ICAEW chart of the week: UK electricity usage

24 April 2020: A dramatic decline in electricity usage confirms the scale of the economic downturn and the impact that will have on tax receipts.

Chart showing 7-day moving average electricity usage between 1 Feb and Apr 22 falling below the 5-year average.

The coronavirus pandemic is having a huge impact on all of us, including in our usage of electricity as illustrated by the #icaewchartofthemonth.

For example, the seven-day moving average electricity generated as of 21 April 2020 was 531 GWh, 23% lower than the 690 GWh supplied on average in the previous five years. This is a dramatic fall, reflecting the closure of much of our high streets, most offices and many factories across the country.

Admittedly, some of the decline will be down to weather, with April in particular being much warmer than usual. However, the collapse in demand since the Great Lockdown began is dramatic, demonstrating just how much has changed in just a few weeks.

A silver lining to the current situation is a significant reduction in carbon emissions, with zero electricity generated from coal or oil power plants in recent weeks. Gas-fired power stations are currently providing only around 20% of UK energy supply, with wind, solar and hydropower together providing in the order of 50% each day. Nuclear provides a further fifth, with the balance coming from biomass (around 5% or so) and imports from France, Belgium and Netherlands (a further 5%, much of which is either from nuclear power plants or from renewable sources in any case). This is very positive news for the environment, even if a bit of a headache for the National Grid electricity system operator in managing a very different mix of generation than normal.

Unfortunately, we will have to wait quite a while to see how this translates into economic statistics, with the OBR amongst others suggesting that the economy could contract by as much as 35% in the second quarter of 2020. This will have major implications for tax receipts and government borrowing, which are rapidly moving in opposite directions.

This chart was originally published by ICAEW.

ICAEW chart of the week: deficit and debt

17 April 2020: The #icaewchartoftheweek is on the ‘coronavirus reference scenario’ put together by the Office for Budget Responsibility (OBR).

Fiscal deficit 2020-21: £55bn Budget 2020 + £130bn lower receipts +£88bn higher spending = £273bn. Net debt: £1,819bn Budget 2020 +£384bn more borrowing = £2,203bn.

It suggests that the deficit for the current fiscal year could end up somewhere in the region of £273bn, around five times as much as the official Spring Budget forecast of £55bn, while public sector net debt could exceed £2.2tn by 31 March 2021, £384bn more than previously expected.
 
This scenario, which the OBR stresses is not a forecast, is based on a three-month lockdown followed by restrictions for a further three months, resulting in a 35% contraction in the economy in the second quarter of 2020, before bouncing back relatively quickly to leave the economy 13% smaller in 2020 than in 2019.
 
Once the crisis has passed and policy interventions have unwound, the OBR thinks that annual borrowing could return to roughly the Spring Budget 2020 forecast. However, net debt would continue to be much higher, potentially £260bn (10% of GDP) more than the baseline forecast by 31 March 2025.
 
This is only of one many potential scenarios, but what is clear is that whatever actually happens, the damage to the public finances from the coronavirus pandemic will be extremely severe.
 
We can (and will) worry about the bill later, when the need for a long-term fiscal strategy to put the public finances onto a sustainable path will be more important than ever before.

This chart was originally published by ICAEW.

ICAEW chart of the week: retail sales

3 April 2020: the #icaewchartoftheweek is on the subject of retail sales, with UK supermarkets experiencing a 20.5% growth in sales in the four weeks ending on Saturday 21 March 2020 according to Nielsen.

Supermarket sales: £9.2bn 4 weeks to 23 Mar 2019 + £1.2bn 3 more shopping trips +£0.7bn 1 more item per basked = £11.2bn 4 weeks to 21 Mar 2020.

This is dramatic for the sector, with sales in the last week in that period up 43% over the equivalent week last year.

Although newspaper headlines are full of stories about panic buying, the statistics themselves provide a more nuanced perspective. Shoppers each made an additional three visits to supermarkets over the four-week period at the same time as adding an extra item to each basket (up from 10 to 11 items on average), with the average spend per basket increasing from £15 to £16.

Although some of those extra £1s will have gone on stocking up on toilet rolls and pasta, in practice the majority of this additional spending will have simply replaced food and drink previously bought elsewhere, as pubs, restaurants, works canteens and school lunches have all ceased to operate over the course of the last few weeks.

A boom time for supermarkets, but terrible for most of the rest of the retail sector.

This chart was originally published by ICAEW.

ICAEW chart of the week: Public sector employment

Headcount / FTEs - Health and social work: 1,925,000 / 1,657,000; Education 1,500,000 / 1,105,000; Public administration 1,056,000 / 897,000; HM Forces and Police: 402,000 / 391,000; Other 505,000 / 464,000.

The #icaewchartoftheweek is about public sector employment, illustrating how just under 5.4m people work for public bodies in the UK or around 4.5m full-time equivalents (FTEs). This is 16.5% of the total UK workforce of 32.8m as of last September on a seasonally-adjusted basis.

The largest employer in the public sector is the NHS, with a headcount of 1.7m out of the 1.9m who work in the health and social work sector (1.5m FTEs). Included in the million or so people who work in public administration is the 451,000-strong Civil Service (419,000 FTEs) with most of the remaining 605,000 working for local authorities and non-departmental public bodies (FTEs 478,000).

Total public sector headcount has started to increase again in recent years with NHS and non-NHS headcount up 6.8% and 0.6% respectively over a nadir of 5.2m three years ago (up 2.5% overall), compared with an increase of 3.8% and a fall of 12.1% respectively over the previous seven years (down 7.8% overall between September 2009 and December 2016).

With increasing demand on the NHS from more people living longer and the ‘end of austerity’ we should expect to see further increases in public sector employment over the next few years.

ICAEW chart of the week: Inflation

Chart: RPI 4% in Jan 2018, 2.5% in Jan 2019, 2.2% in Dec 2019. CPI: 3%, 1.8%, 1.3%. CPIH: 2.7%, 1.8%, 1.4%.

The #icaewchartoftheweek is on inflation this week, with the Office for National Statistics reporting that consumer price inflation fell to 1.3% in December 2019 – its lowest level for over three years and towards the lower end of the Bank of England’s target range of 1% to 3%.

Accompanied by very low levels of economic growth, this has prompted speculation that the Bank of England may cut interest rates at some point this year to try and stimulate the economy. They may also be hoping that plans to boost infrastructure spending will help kick-start the economy and encourage a tad more inflation at the same time.

The Chancellor is currently consulting on plans to converge the statistically flawed Retail Prices Index with CPIH (CPI including housing) over the coming decade. This will be good news for commuters and some students, given RPI’s use in calculating fare increases and interest payments. However, it will be less good for many pensioners and holders of government debt who currently benefit from higher rates.

ICAEW chart of the month: UK international trade

Imports £718bn: EU £369bn, EFTA £34bn, USA £87bn, Other Americas £26bn, Asia-Pacific £138bn, Other £64bn. Exports £673bn: EU £297bn, EFTA £29bn, USA £133bn, Other Americas £29bn, Asia-Pacific £108bn, Other £77bn.

With recent changes in ICAEW communications, the ICAEW Public Sector team has started an #icaewchartofthemonth to complement the #icaewchartoftheweek.

The first #icaewchartofthemonth was published on the ICAEW’s Insights Hub (icaew.com/insights) on Friday 31 January 2020 and is on the UK’s international trade. It highlights how important the £718bn in imports and £673bn in exports in the year to 30 September 2019 are to the economy of the UK.

As the UK Government starts to negotiate new trade arrangements with countries around the world, the EU will be the highest priority. Imports into the UK of £369bn represent 51% of total imports and exports to the 27 EU countries of £297bn are 44% of total exports. This is followed by the USA, where imports of £87bn and exports of £133bn represent 12% and 20% respectively.

Trade relationships with countries in the Asia-Pacific region will also be very important, in particular China (imports £60bn and exports £39bn), Japan (£17bn and £15bn) and the 10-country Association of South East Asian Nations (£22bn and £19bn).

https://www.icaew.com/insights/features/2020/jan-2020/uk-international-trade

ICAEW chart of the week: Q4 retail sales

Chart: 2018 Q4 retail sales £121.3bn + inflation (1.4%) £1.7bn + sales growth (0.9%) £1.1bn = £124.1bn 2019 Q4 retail sales.

Concerned about the state of the UK economy? Then the latest retail sales numbers will not have helped, with fourth quarter sales in the UK mainland just 0.9% higher after inflation over a year earlier, as illustrated by the #icaewchartoftheweek.

With population growth still estimated to be running at around 0.6% a year, this implies that retail sales per capita in Q4 (at around £635 per month) were just 0.3% higher after inflation than the same period in 2018.

Sales in Q4 of £124.1bn comprised £41.3bn on food, drink and tobacco, £21.3bn on clothing and footwear, £19.6bn on household goods, £11.5bn on automotive fuel and £30.4bn on other non-food purchases. On a per capita basis, this is equivalent to approximately £210 per person per month on food, drink and tobacco, £110 on clothing and footwear, £100 on household goods, £60 on automotive fuel and £155 on other non-food purchases.

This low level of growth on a year earlier reflects a slow-down in retail activity in the fourth quarter of 2019, with the Office for National Statistics reporting that Q4 sales were 0.9% lower than the third quarter on a seasonally-adjusted basis.

This will feed into fourth quarter GDP, which will not be good news for the Chancellor as he puts together what is being rumoured to be a radical first Budget in March – a weak economy will reduce his room for manoeuvre to reform the tax system while boosting public spending at the same time.

ICAEW chart of the week: A Single Market of 529m people

A chart comprising a colour-coded grid of 529 squares each representing 1m people in the Single Market.

2020 is likely to be an interesting year for many reasons, but in Europe all eyes will be on UK and EU negotiators as they attempt to agree a new trading relationship following the ending of the UK’s membership of the European Union at the end of this month.

As illustrated by the #icaewchartoftheweek, the UK is currently the third largest of the 32 members of the ‘European Single Market’, a trade bloc that comprises the 28 European Union member states and the four European Free Trade Association (EFTA) members.

The UK appears be aiming for a more distant trading relationship than that it currently enjoys as a EU member or that enjoyed by the 4 EFTA nations (three of which are members of the European Economic Area and the fourth – Switzerland – which has a series of bilateral agreements to give it access to the Single Market). Despite that, there are still a wide range of potential outcomes ranging from no agreement through to a much closer set of trading arrangements across multiple industries.

From a trade perspective, nothing much will change on 31 January when the UK formally ends it membership of the EU as the UK will continue to participate fully in the Single Market (as well as the EU Customs Union) until the end of the year. It will only be on 1 January 2021 that any new trade arrangements will come into force, changing the way that people and businesses operate across borders.

For now, it is very difficult to predict what exiting the Single Market will mean for the 67m people in the UK or the 462m people remaining in the Single Market. However, one prediction that can be made is that there will be plenty of opportunities for wild – and no doubt contradictory – headlines as the negotiators set to work!

Germany83.2mBulgaria6.9m
France67.2mDenmark5.8m
UK67.1mFinland5.5m
Italy60.2mSlovakia5.5m
Spain47.1mNorway5.4m
Poland38.0mIreland4.9m
Romania19.3mCroatia4.1m
Netherlands17.3mLithuania2.8m
Belgium11.5mSlovenia2.1m
Czechia10.7mLatvia1.9m
Greece10.7mEstonia1.3m
Sweden10.4mCyprus0.9m
Portugal10.3mLuxembourg0.6m
Hungary9.7mMalta0.5m
Austria8.9mIceland0.4m
Switzerland8.6mLiechtenstein0.04m

ICAEW chart of the week: Post-GE2019 fiscal deficits

With the General Election now complete, the Office for Budget Responsibility (OBR) was able to release a restated version of its March 2019 fiscal forecasts this morning, reflecting technical revisions to the way the fiscal numbers are calculated, in particular that of student loans. This enables us to update the numbers set out our GE2019 Fiscal Insight on the party manifestos as best we can, given that the OBR has not deigned to include either the changes to public spending announced in the Spending Round 2019 nor the tax and spending changes in the Conservatives manifesto.

As illustrated by the #icaewchartoftheweek, the revised baseline forecast for the fiscal deficit is now £50bn for the current fiscal year, followed by £59bn next year in 2020-21, £58bn in 2021-22 and 2022-23 and £60bn in 2023-24.

It was frustrating that the OBR scheduled their publication of these revised numbers for the first day of the General Election purdah period making it vulnerable – as happened – to being pulled. A day earlier and that would not have happened! Ideally, these revisions would have been published as soon as practical after the publication by the ONS of their revisions to historical numbers in September.

It would have been even better if the OBR had been able to update their economic forecast too, given that the current baseline is still based on an economic and fiscal analysis from nine-months ago. With weak economic growth over the first half of the financial year, it is likely that the OBR will cut its forecasts for tax revenues over the forecast period when it does get round to updating them, resulting in higher deficits – even before taking account of suggestions that the Conservative GE2019 winners plan to announce a splurge of more capital expenditures in the Spring Budget in February.

Unfortunately, we won’t see an updated long-term forecast until at least July 2020, when the OBR is scheduled to publish its next fiscal sustainability report on the prospects for the public finances.