Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to stirlo,johnstevens77,Rhyd6,87investor,longview, for Donating to support the site

UK GDP - what's going on?

including Budgets
ursaminortaur
Lemon Half
Posts: 5227
Joined: November 4th, 2016, 3:26 pm
Has thanked: 19 times
Been thanked: 165 times

Re: UK GDP - what's going on?

#320021

Postby ursaminortaur » June 20th, 2020, 1:29 pm

1nvest wrote:
ursaminortaur wrote:Image

Interesting chart. Thanks.

Looking at the 1950 peak, I believe interest rates back then were around 0.5%. Looking at the lows and that coincided with periods of higher interest rates.

Would be interesting to see the progression for a cost to service debt, debt level x interest rate being paid. But even though that might be a smoother line, would also be nice to see how much was actual external debt, rather than for instance as of present when the BoE holds around a third of the Treasury's Gilts (debt) and returns all interest paid on those gilts back to the treasury.


Here is the corresponding interest paid as a percentage of GDP chart

Image

and a similar graph which shows interest payments from 1980 onwards.

Image

Of course these are for the total interest paid and don't take into account that a large part is being paid back to the treasury since QE.

Here is a spreadsheet of interest rates since 1694. After the war interest rates were at 2% until 1951.

https://docs.google.com/spreadsheets/d/1OKo38R1blO71SGNIVuhaRZ4P2GYPpJQklmOymQiXixQ/edit?hl=en&hl=en#gid=0

ursaminortaur
Lemon Half
Posts: 5227
Joined: November 4th, 2016, 3:26 pm
Has thanked: 19 times
Been thanked: 165 times

Re: UK GDP - what's going on?

#320028

Postby ursaminortaur » June 20th, 2020, 1:50 pm

ursaminortaur wrote:
1nvest wrote:
ursaminortaur wrote:Image

Interesting chart. Thanks.

Looking at the 1950 peak, I believe interest rates back then were around 0.5%. Looking at the lows and that coincided with periods of higher interest rates.

Would be interesting to see the progression for a cost to service debt, debt level x interest rate being paid. But even though that might be a smoother line, would also be nice to see how much was actual external debt, rather than for instance as of present when the BoE holds around a third of the Treasury's Gilts (debt) and returns all interest paid on those gilts back to the treasury.


Here is the corresponding interest paid as a percentage of GDP chart

Image

and a similar graph which shows interest payments from 1980 onwards.

Image

Of course these are for the total interest paid and don't take into account that a large part is being paid back to the treasury since QE.

Here is a spreadsheet of interest rates since 1694. After the war interest rates were at 2% until 1951.

https://docs.google.com/spreadsheets/d/1OKo38R1blO71SGNIVuhaRZ4P2GYPpJQklmOymQiXixQ/edit?hl=en&hl=en#gid=0


Note. The interest rate spreadsheet comes from a 2013 Guardian article

https://www.theguardian.com/news/datablog/2011/jan/13/interest-rates-uk-since-1694

ursaminortaur
Lemon Half
Posts: 5227
Joined: November 4th, 2016, 3:26 pm
Has thanked: 19 times
Been thanked: 165 times

Re: UK GDP - what's going on?

#320030

Postby ursaminortaur » June 20th, 2020, 2:03 pm

Lootman wrote:
dealtn wrote:
Lootman wrote:That one gets my vote. If interest rates are now half what they were when it was at 40%, the cost of servicing that debt hasn't changed.

In fact interest rates may well be a quarter of what they were 15 years ago, in which case a 160% debt-to-GDP ratio would be entirely serviceable.

And bear in mind the debt is never paid off. When bonds mature the old bondholders are paid off using the proceeds of newly issued bonds. So all that matters is the annual interest cost.

I hope the Treasury is taking the opportunity to issue more longer-dated gilts to fund this expansion of debt. There is probably a market for durations out to 40, 50 and maybe even 100 years, locking in these rates.

Inflation will do the rest.

Sounds like you are expecting at least some inflation. In which case what do you think might happen to interest rates? If you think interest rates might rise, how do you propose that 80%, or even 160% debt-to-GDP ratio is reduced such that the affordability metric you appear to be advocating is restored?

It is very easy for that debt-to-GDP ratio to go in one direction, but multiple times harder to go the other way I would think.

Yes, that was why I expressed the opinion that the government should be issuing very long-dated gilts as much as possible. Then if inflation returns there will be a lag between that and the interest burden of the debt rising.

Inflation would of course be effective at reducing the real value of the debt as well. So I expect the government to be sanguine about at least a modest return of inflation. Otherwise, yes, very hard to get back to 40% without real pain (much higher taxes and/or drastic spending cuts).


UK governments have been pursuing that policy of preferring to issue long dated gilts for a couple of decades now and have substantially increased the average debt maturity.
In 2017 the average UK debt maturity was 15.4 years and although I don't have later figures I'd expect it is likely either the same or greater now.

http://www.centreformacroeconomics.ac.uk/Discussion-Papers/2017/CFMDP2017-27-Paper.pdf

In July 2017 the weighted average time to maturity of UK government debt was 15.4 years - more than 10 years higher than the US and the only OECD government with an average debt maturity greater than 10 years.

JamesMuenchen
Lemon Slice
Posts: 823
Joined: November 4th, 2016, 9:05 pm
Has thanked: 84 times
Been thanked: 101 times

Re: UK GDP - what's going on?

#320045

Postby JamesMuenchen » June 20th, 2020, 3:22 pm

Having also now read this news in the Graun I decided it was possibly worth going to the source.

https://www.ons.gov.uk/economy/governme ... es/may2020

Important to note that this is all based on flakier than usual estimates, as nobody really has a clue what is going on.
Borrowing estimates are subject to greater than usual uncertainty; borrowing in April 2020 was revised down by £13.6 billion to £48.5 billion,
That's a 20% revision! How likely is it that April will now be accurate or that their first stab at borrowings in May will not be massively overstated as well?

On the other side, the GDP estimate they use comes from the OBR's guess here:
https://obr.uk/coronavirus-analysis/
This includes a forecast 35% contraction for 2020Q2, and there's already indication that things never got that bad (eg tax receipts are now being revised upwards).

I'm not trying to say the UK won't join the 100% club sometime soon, just that I doubt it has.

As for the QE element, well there's this:
If we were to remove the temporary debt impact of APF and TFS, public sector net debt (excluding public sector banks) at the end of May 2020 would reduce by £195.5 billion (or 10.1% percentage points of GDP) to £1,754.6 billion (or 90.8% of GDP).

johnhemming
Lemon Quarter
Posts: 3567
Joined: November 8th, 2016, 7:13 pm
Has thanked: 9 times
Been thanked: 404 times

Re: UK GDP - what's going on?

#320059

Postby johnhemming » June 20th, 2020, 3:56 pm

JamesMuenchen wrote:H nobody really has a clue what is going on.

If the figures are out by between 5 and 10 billion per month we still are pretty clear as to the situation. There is uncertainty as to the long term impact on GDP, that feeds into uncertainty as to the effect on the public purse. The Bank of England should have pretty up to the minute figures on payments from the payment institutions.

1nvest
Lemon Slice
Posts: 602
Joined: May 31st, 2019, 7:55 pm
Has thanked: 70 times
Been thanked: 143 times

Re: UK GDP - what's going on?

#320087

Postby 1nvest » June 20th, 2020, 5:55 pm

Thanks again ursaminortaur for those additional charts. Went to 'thumbs up' (thank you) for your posts, but that option is missing in this section (and apparently in others also such as Passive Investing).

So fundamentally given that the BoE is holding around a third of the UK Treasury debt, the cost of servicing that debt is relatively low. By eye 2.3% of GDP for the full amount x 0.66 = 1.5% of GDP.

IIRC the UK has more foreign holders of its debts than the UK holds of others debts, but where the UK pays less. So providing the foreign debts that the UK holds don't default in any big way the UK is doing OK/well.

GoSeigen
Lemon Quarter
Posts: 2511
Joined: November 8th, 2016, 11:14 pm
Has thanked: 668 times
Been thanked: 682 times

Re: UK GDP - what's going on?

#320128

Postby GoSeigen » June 20th, 2020, 9:19 pm

johnhemming wrote:The arguments were about the deficit not the debt because it is the deficit that is difficult to handle.



As usual no idea who this is addressed to. Any chance of quoting the text being responded to?

And the above is nonsense. There were heaps of people saying debt was too high (K. Rogoff anyone?), not least the Tories themselves, just before they piled it up sky high.


GS

johnhemming
Lemon Quarter
Posts: 3567
Joined: November 8th, 2016, 7:13 pm
Has thanked: 9 times
Been thanked: 404 times

Re: UK GDP - what's going on?

#320131

Postby johnhemming » June 20th, 2020, 9:25 pm

GoSeigen wrote:
johnhemming wrote:The arguments were about the deficit not the debt because it is the deficit that is difficult to handle.



As usual no idea who this is addressed to. Any chance of quoting the text being responded to?

And the above is nonsense. There were heaps of people saying debt was too high (K. Rogoff anyone?), not least the Tories themselves

There were people who could not distinguish between the two, but those who could argued about the deficit. If you wish to argue otherwise please find a good source.

Lootman
Lemon Half
Posts: 7922
Joined: November 4th, 2016, 3:58 pm
Has thanked: 67 times
Been thanked: 1408 times

Re: UK GDP - what's going on?

#320132

Postby Lootman » June 20th, 2020, 9:26 pm

johnhemming wrote:
GoSeigen wrote:
johnhemming wrote:The arguments were about the deficit not the debt because it is the deficit that is difficult to handle.

As usual no idea who this is addressed to. Any chance of quoting the text being responded to?

And the above is nonsense. There were heaps of people saying debt was too high (K. Rogoff anyone?), not least the Tories themselves

There were people who could not distinguish between the two, but those who could argued about the deficit. If you wish to argue otherwise please find a good source.

To me the main difference is that the deficit has to be funded annually. But the debt can be rolled forward indefinitely. so the former matters more than the latter.

GoSeigen
Lemon Quarter
Posts: 2511
Joined: November 8th, 2016, 11:14 pm
Has thanked: 668 times
Been thanked: 682 times

Re: UK GDP - what's going on?

#320133

Postby GoSeigen » June 20th, 2020, 9:28 pm

JamesMuenchen wrote:The problem is that Austerity is a political term with very little economic meaning. It's used to imply "Cuts" when they're aren't any. So the fact that people get confused is a feature, not a bug.


Austerity is the word used by George Osborne himself and he knew very well what he meant and made it very clear. He was determined to make swingeing cuts in department budgets wherever he could get away with it politically. He was one of the most economically ignorant chancellors the UK has had for a long time and was taught a hard economic lesson -- and a political one when he lost the referendum and resigned like the utter coward he was.



GS

GoSeigen
Lemon Quarter
Posts: 2511
Joined: November 8th, 2016, 11:14 pm
Has thanked: 668 times
Been thanked: 682 times

Re: UK GDP - what's going on?

#320134

Postby GoSeigen » June 20th, 2020, 9:30 pm

johnhemming wrote:
GoSeigen wrote:
johnhemming wrote:The arguments were about the deficit not the debt because it is the deficit that is difficult to handle.



As usual no idea who this is addressed to. Any chance of quoting the text being responded to?

And the above is nonsense. There were heaps of people saying debt was too high (K. Rogoff anyone?), not least the Tories themselves

There were people who could not distinguish between the two, but those who could argued about the deficit. If you wish to argue otherwise please find a good source.


I already named one. You ignored it. I'll add Niall Fergusson if that helps you. Along with William Littlewood and many others. It was practically gospel. The idea that intelligent people confused debt and deficit is condescending rubbish.

You're the one arguing with my point. You provide sources.

GS

Lootman
Lemon Half
Posts: 7922
Joined: November 4th, 2016, 3:58 pm
Has thanked: 67 times
Been thanked: 1408 times

Re: UK GDP - what's going on?

#320135

Postby Lootman » June 20th, 2020, 9:31 pm

GoSeigen wrote:
JamesMuenchen wrote:The problem is that Austerity is a political term with very little economic meaning. It's used to imply "Cuts" when they're aren't any. So the fact that people get confused is a feature, not a bug.

Austerity is the word used by George Osborne himself and he knew very well what he meant and made it very clear. He was determined to make swingeing cuts in department budgets wherever he could get away with it politically. He was one of the most economically ignorant chancellors the UK has had for a long time and was taught a hard economic lesson -- and a political one when he lost the referendum and resigned like the utter coward he was.

That is certainly one view. The other is that since Brown spent money he didn't have like a drunken sailor, GO has little choice.

But as someone who was way underwater on busted bank preference shares, I can certainly understand why you preferred Brown, who basically bailed you out of your bad investments.

johnhemming
Lemon Quarter
Posts: 3567
Joined: November 8th, 2016, 7:13 pm
Has thanked: 9 times
Been thanked: 404 times

Re: UK GDP - what's going on?

#320136

Postby johnhemming » June 20th, 2020, 9:32 pm

GoSeigen wrote: swingeing cuts in department budgets wherever he could get away with it politically. He was one of the most economically ignorant chancellors the UK has had for a long time


Try checking what happened to total public spending in real terms.

Alaric
Lemon Quarter
Posts: 4501
Joined: November 5th, 2016, 9:05 am
Has thanked: 13 times
Been thanked: 911 times

Re: UK GDP - what's going on?

#320137

Postby Alaric » June 20th, 2020, 9:34 pm

Lootman wrote: But the debt can be rolled forward indefinitely. so the former matters more than the latter.


True perhaps at low interest rates. When Dennis Healey was borrowing at 15%, 15% of what he borrowed got added to the following year's public spending and added to the next year's deficit.

Who is lending all this new money at minimal interest rates to the British Government to finance the deficit? Under QE is the Government just printing it and doing smoke and mirrors between the Treasury and the Bank of England?

johnhemming
Lemon Quarter
Posts: 3567
Joined: November 8th, 2016, 7:13 pm
Has thanked: 9 times
Been thanked: 404 times

Re: UK GDP - what's going on?

#320139

Postby johnhemming » June 20th, 2020, 9:36 pm

GoSeigen wrote:I'll add Niall Fergusson if that helps you. Along with William Littlewood and many others. It was practically gospel. The idea that intelligent people confused debt and deficit is condescending rubbish.

You're the one arguing with my point. You provide sources.

You need to prove your point. I dont remember any of those names being MPs. Find official sources that said the debt was a bigger problem than the deficit.

dspp
Lemon Half
Posts: 5939
Joined: November 4th, 2016, 10:53 am
Has thanked: 4964 times
Been thanked: 1722 times

Re: UK GDP - what's going on?

#320151

Postby dspp » June 20th, 2020, 11:19 pm

Alaric wrote:
Lootman wrote: But the debt can be rolled forward indefinitely. so the former matters more than the latter.


True perhaps at low interest rates. When Dennis Healey was borrowing at 15%, 15% of what he borrowed got added to the following year's public spending and added to the next year's deficit.

Who is lending all this new money at minimal interest rates to the British Government to finance the deficit? Under QE is the Government just printing it and doing smoke and mirrors between the Treasury and the Bank of England?


Sometimes I wish recs existed in PD-space.

regards, dspp

Lootman
Lemon Half
Posts: 7922
Joined: November 4th, 2016, 3:58 pm
Has thanked: 67 times
Been thanked: 1408 times

Re: UK GDP - what's going on?

#320153

Postby Lootman » June 20th, 2020, 11:22 pm

dspp wrote:
Alaric wrote:
Lootman wrote: But the debt can be rolled forward indefinitely. so the former matters more than the latter.

True perhaps at low interest rates. When Dennis Healey was borrowing at 15%, 15% of what he borrowed got added to the following year's public spending and added to the next year's deficit.

Who is lending all this new money at minimal interest rates to the British Government to finance the deficit? Under QE is the Government just printing it and doing smoke and mirrors between the Treasury and the Bank of England?

Sometimes I wish recs existed in PD-space.

Healey could not sell gilts because at the time we were a basketcase. Which is why he humiliated himself at the IMF.

The UK can now sell gilts up the wazoo at 1% a year for 30 or more years. Why wouldn't we?

JamesMuenchen
Lemon Slice
Posts: 823
Joined: November 4th, 2016, 9:05 pm
Has thanked: 84 times
Been thanked: 101 times

Re: UK GDP - what's going on?

#320160

Postby JamesMuenchen » June 21st, 2020, 6:39 am

johnhemming wrote:Try checking what happened to total public spending in real terms.

Did it increase at a slower rate than overall GDP?

Alaric wrote:Who is lending all this new money at minimal interest rates to the British Government to finance the deficit? Under QE is the Government just printing it and doing smoke and mirrors between the Treasury and the Bank of England?

It certainly looks that way, yes

https://www.ons.gov.uk/economy/governme ... es/may2020
At the end of May 2020, the gilt holdings of the APF have increased by £46.7 billion (at nominal value) compared with the end of April 2020, to £475.1 billion in total. This increase is of a similar order of magnitude to the new issuance by the DMO in May 2020, which means that gilt holdings by units other than the APF have changed very little since April 2020.

johnhemming
Lemon Quarter
Posts: 3567
Joined: November 8th, 2016, 7:13 pm
Has thanked: 9 times
Been thanked: 404 times

Re: UK GDP - what's going on?

#320162

Postby johnhemming » June 21st, 2020, 7:21 am

JamesMuenchen wrote:
johnhemming wrote:Try checking what happened to total public spending in real terms.

Did it increase at a slower rate than overall GDP?


Public spending increased in cash terms, but was around constant in real terms. Which means on an aggregate basis arguing that there has been severe cuts is not true. On an aggregate basis there were not cuts. It did, however, increase at a rate lower than GDP. The idea of that was to enable the deficit to be reduced both to initially ensure that the debt reduced as a proportion of GDP and then move towards reducing the debt.

JamesMuenchen wrote:
johnhemming wrote:
Alaric wrote:Who is lending all this new money at minimal interest rates to the British Government to finance the deficit? Under QE is the Government just printing it and doing smoke and mirrors between the Treasury and the Bank of England?

It certainly looks that way, yes

https://www.ons.gov.uk/economy/governme ... es/may2020
At the end of May 2020, the gilt holdings of the APF have increased by £46.7 billion (at nominal value) compared with the end of April 2020, to £475.1 billion in total. This increase is of a similar order of magnitude to the new issuance by the DMO in May 2020, which means that gilt holdings by units other than the APF have changed very little since April 2020.

It is a bit more subtle in that the debt is issued to the market and then bought back by the bank. The interest is paid to the bank at some stage if I remember rightly started paying some to the treasury.

Arguably this results in some asset value inflation, but partially that is an objective of it. If normal inflation started increasing then QE would have to stop.

JamesMuenchen
Lemon Slice
Posts: 823
Joined: November 4th, 2016, 9:05 pm
Has thanked: 84 times
Been thanked: 101 times

Re: UK GDP - what's going on?

#322699

Postby JamesMuenchen » June 30th, 2020, 9:05 am

UK Q1 GDP revision released
https://www.ons.gov.uk/economy/grossdom ... omarch2020
UK gross domestic product (GDP) in volume terms fell by 2.2% in Quarter 1 (Jan to Mar) 2020, revised downwards by 0.2 percentage points from the first quarterly estimate; the largest fall in UK GDP since Quarter 3 (July to Sept) 1979 when it also fell by 2.2%.

Important to note all the disclaimers around the data quality and that
The Office for National Statistics (ONS) recently published the monthly GDP figures for April 2020, which showed a 10.4% fall in GDP in the three months to April, reflecting the impact of government measures to reduce transmission of COVID-19 on economic activity. It should be noted that the April figures, which were published on 12 June 2020 and which began the production cycle for the first quarterly estimate for Quarter 2 2020, are not consistent with the figures in today’s publication, which uses additional data sources to provide an updated estimate of economic growth in Quarter 1 2020 compared with the first quarterly estimate.


Return to “The Economy”

Who is online

Users browsing this forum: No registered users and 1 guest