Pointy-headed thread: Do you remember this tweet of mine from earlier this year? About how extraordinary flows of gold out of the UK are completely changing the picture of UK trade? Well, brief update: it's still happening. Big time.
In the past few quarters, the UK trade account has swung into positive territory for the first time since the 1990s. And not just positive territory: the biggest trade surplus EVER. £16.9bn in Q2 alone...
It's worth emphasising that even if you look at the trade balance as a % of GDP it's still one of the highest levels we've ever seen. Only one other quarter - Q1 1981 - had a higher surplus. And I don't think it's ever swung quite as dramatically as this...
And the story this time around - as last time around - comes largely back to gold. In the past year the amount of gold being "exported" from the UK has hit around £24bn. We "imported" about £15 billion of the stuff. This is totally unprecedented - and not a little odd
In fact if you were to count gold as a normal export it would be our third biggest export, just above pharmaceuticals (which we're a world leader in btw). But here's why I put it in inverted commas: it's not really an export. Indeed in most cases it doesn't even leave the country
London is the world's capital for the trade in physical gold. And when gold changes hands from a British owned institution or investor to a non-British one then that's counted as an export. Even though it usually doesn't even leave the vault!
How can we be sure this isn't gold leaving the country? Well for one thing these days the @bankofengland publishes data on how much gold it has in its vaults. And over this period it's actually risen a fair bit - the equivalent of £17bn or so bankofengland.co.uk/statistics/gold
I only mention all of this because this morning I found myself leafing through the ONS balance of payments data (as you do) and I struggled to make sense of it. Look: including gold the deficit is £2.8bn. Exclude gold and it's £12.1bn. That's a mind-boggling difference!
And unless I've missed something, save for that par 👆, @ONS still uses that distorted current account fig everywhere else. In its tables, its charts etc. That distorted figure is the one that'll go into IMF/OECD databases and be used to compare UK to other countries, I assume
I couldn't even find an official @ONS series for the underlying non-distorted current account, so I made one myself. It's the red line here. Black line is the "official figure". Yellow bars are the net balance of gold movements in and out of the UK which I've simply subtracted.
Why am I going on about this? Because the current account is one of the most important economic statistics. And thanks to the way we account for gold movements it's becoming a real mess. It is poss to adjust for this and the @ONS is trying hard but it's fighting an uphill battle
There are international statistical rules stipulating that we include these flows. So while @ONS includes plenty of small (and big) print, the official measures - the ones that most people pay attention to and are used for international comparisons - are increasingly meaningless.
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🧵Some thoughts re inflation.
Not the data today, but two deep issues we should prob spend more time thinking about. 1. While economists and policymakers may have convinced themselves that the cost of living squeeze is over, for millions of households, it doesn't feel that way.
The key thing to remember here is that when economists talk about inflation what they're really talking about is the ANNUAL RATE at which a basket of goods and services changes price. And certainly, that rate is much lower than the 2022 peaks...
But, as I say, what that number is is simply looking at the difference in the LEVEL of prices over the past year. This chart is that level. (The actual consumer price index!).
And yes, look over the year to May and it's up 3.4%.
🧵Why, barely 24 hours after the Spending Review, is everyone already going on about tax rises?
Are they REALLY coming?
Or is this an "incoherent argument", as one leading minister calls it?
Well here's a thread explaining what's really going on here.
Bear with me...
First things first.
Key thing to remember is that the main job of HMT is to generate enough money, mostly via taxes (left hand bar here), to finance all its spending (right hand bar).
If that left hand bar isn't high enough, we have to borrow to fill the gap.
That's the deficit!
This week's Spending Review was about the right hand column, obvs. But not ALL of the column.
Actually more than half of govt spending is on stuff that WASN'T covered by the spending review - on benefits, debt interest, pensions etc. It's called "annually managed expenditure"
🧵
You may recall a spate of stories a few years ago about appalling working conditions & abysmally low pay in Leicester's clothes factories.
The hope was those stories would shame businesses into improving working conditions.
But here's what ACTUALLY happened next...
👇
Instead of staying in Leicester, most brands abandoned it & shifted production to N Africa & S Asia.
Today Britain's biggest centre of textile & apparel manufacture is battling the threat of extinction.
It's a mostly untold economic story we've spent recent months documenting
Once upon a time Leicester was the beating heart of UK clothes manufacturing.
The city was dotted with factories making clothes for big name brands.
Now, according to one estimate, the number of clothes factories has dropped from 1500 in 2017 to under 100 this year. A 95% fall.
How big a deal is the new trade agreement unveiled between the US and the UK? Here are some initial thoughts.
Start with this: this is total UK exports to the US over the past 5yrs: £273bn. Right now most of this will face a 10% tariff. Some things (eg cars) face 25% extra
Let's break down that total. The biggest chunk is cars. Just under £30bn. That's covered under the agreement. So too are steel/aluminium exports. Much smaller at £2.7bn...
These sectors will benefit from special deals (though much of the detail still remains vague).
Rolls Royce will apparently get tariff free access for its jet engines. That mostly helps Boeing, but also Rolls Royce. Jet engines comprise a surprisingly large chunk of UK exports to the US, about £17.3bn. So let's shade that red too...
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The Chinese owners of British Steel say they are now considering shutting their blast furnaces and end steelmaking at Scunthorpe in early June - only a few months away.
It would mean an end of virgin steelmaking in the country that invented it during the industrial revolution
British Steel say the main question now is timing: whether the operations will close in June, in September or later.
It says tariffs are one of the reasons the blast furnaces are "no longer financially sustainable".
Press release 👇
The news means @jreynoldsMP faces two interlocking crises in the coming months: 1. The imposition of US tariffs on an ever growing segment of British exports 2. The end of virgin steelmaking (the UK would be the first G7 country to face this watershed moment).
This is big stuff
Donald Trump just announced 25% tariffs on anyone importing oil from Venezuela.
This is odd.
Because the country importing the most crude from Venezuela is... the US.
Capital Economics chart of Ven oil exports by Capital Economics via @rbrtrmstrng
But it raises a bigger point
🧵
Why does the US import so much oil from Venezuela?
Mainly for the same reason it imports so much oil from Canada.
And no it's not just because they're close.
It's because most US refineries are set up to refine the kind of oil they have in Venezuela and Canada.
To understand this it helps to recall that crude oil is actually a broad term. There are LOTS of different varieties of crude - a function of the geology of where the oil formed and the organic ingredients that went into it millions of years ago.
It's called "crude" for a reason