01_Credit Steven Straiton-BRIGHTENED

The decline in North Sea oil is more problematic for the British economy than the steel industry’s well-publicised closures

Roger Williams takes stock of the latest headlines and deduces what we can conclude about the UK’s current economic situation.

Keynes, the famous British economist, once said in rebuttal: “When the facts change, I change my mind. What do you do, Sir?” Each day, probably like you, I read the paper. It is increasingly difficult not to be affected by the editorial comment when looking at the UK in particular. In part, this is because bald facts are less interesting to most people than what the prime minister said, and his comments sell fewer newspapers than a story of the indiscretion of some soap opera star or the ranting of a terrorist group. Even so, let’s take a look at the change in the facts concerning the UK and try to put them into perspective, nationally and internationally.

In January, one always gets a review of last year and an update of key indicators.  Here are some of the headlines that caught my eye:

Fewer firms going bust than any time since the Thatcher boom (Daily Telegraph) – According to statistics from the Insolvency Service, in 2015 1,406 companies went into administration, a 11.4 per cent fall from 2014. A good sign? Well perhaps not a bad sign but I wonder if the clear out of weak firms since 2008 would mean that this would occur naturally. Have the banks been keeping ailing firms going in a time when costs to do so are low in a period of very low interest rates? Do they have an incentive to do this to maintain their (new) capital ratios? Conclusion: The fact tells very little.

Don’t swallow too much of Osborne’s toxic cocktail (Sunday Times) – Public borrowing is estimated to have been cut by 50 per cent, so says George Osborne. In simple terms, each day that passes the UK’s debt (estimated to be £1.53 trillion) increases. The rate at which it grows is slowing. So six years after the UK’s annual public borrowing peaked at £150 billion, it is estimated that it may be reduced to £70 billion.

Let’s put this into perspective: The US has $18 trillion (£12 trillion) of government debt and $66 (£45 trillion) in ‘unbooked’ obligations such as Medicare, Medicaid and Social Security. This is growing exponentially.

Conclusion: We’re still deep in debt and it’s getting deeper every day, but it could be worse.

Meltdown for an industry where Britain once ruled (Daily Telegraph) – “The decline in Britain’s share of the world steel market has seen the number of people employed in the UK industry drop from 38,000 in 1994 to fewer than 18,000 today, despite world demand more than doubling.” That drop of 20,000 over 20 years may be put in perspective:

  • The North Sea oil business employs 375,000 people and 65,000 of these were lost in 2015 alone. This in an industry that was one of the biggest sources of tax revenue for the UK Exchequer. The Office for Budget Responsibility predicted that 2016 tax revenue would fall 95 per cent to £600 million down from £12.9 billion in 2009.
  • The US economy added 292,000 jobs in December 2015.
  • And according the British Bankers Association, UK banking contributed £31.3 billion in tax to the Exchequer in 2014 and employs 400,000 people.

Conclusion: Steel is something of a red herring; bad news for those localities but small beer compared to the impact of oil prices on North Sea employment, or the threats to UK banking by the EU regulators.

Buyers paying more with shortage of homes for sale (Daily Telegraph) – House prices hit an average price of £514,097, up 12.4 per cent from December 2014. This compares to a 0.8 per cent increase in average prices in the North East.

Conclusion: Aside from the rush to buy caused by the increase in stamp duty for second homes, house prices continue to give a warm feeling to house-obsessed Britons.  The statistics however show how London/finance centred our UK ‘recovery’ remains.

Overall conclusion: The UK is two countries, not defined in total by geography, although this has a part to play. These consist of the London-centric financial and service economy, and, outside of the southeast, heavier manufacturing and natural resources.

Key to the UK’s future is understanding this division. The steel industry matters, but in perspective not as much as banking. That the Chinese grab 50 per cent of the world’s steel output matters less to the UK than the EU passing banking regulations that ham-string the powerhouse of the economy. We need competitive finance of our houses not just for buyers but to build them. Our economy grows with consumer demand. Remove the aspiration (own your house, buy a better car and go to the Maldives) and the ‘incentive’ disappears.

The UK is a nation of status-seekers: where you live, the car you buy and where you go on holiday. As you can see from the above, in world-terms, by comparison to the USA, we’re minnows. Our problems are small.  However, we ‘own’ and run many of the markets (they are in the UK and employ principally UK citizens) that are world’s financial, currency and commodities exchanges.

Here is the rub for the gun trade, however: The consumers of our products are increasingly in the south; increasingly in an office, increasingly divorced from the countryside and, I believe, increasingly less interested in country sports. Our recovery is faltering as China and the USA slow down. So is there a beacon of light?  Yes, I think there is and I quote Peter Spence, ‘(Crude Reckoning’, Daily Telegraph): “While the negative impacts of oil arrive immediately, the positive effects take longer to materialise. While oil might act as a depressant for now, it will become a stimulant later”.

This view is certainly directly applicable to the USA whose oil industry has been hit hard but, where US auto sales reached a 15-year record high of 17.47 million vehicles, there will be a major injection of potentially disposable income into the economy. In the UK, where the hit to the North Sea cannot be over-stated, it is less clear what the impact on consumers of oil will be. In the pocket of consumers the drop in oil is muffled by taxes and distributors slowness to reduce prices at the pump. The UK’s manufacturing sector is much smaller than the US and utilises relatively a higher proportion of gas. So, I suspect the effect of reduced oil will be relatively less. Whatever the truth of it, it is coming at a time which looks to show a weaker start to the year in consumer spending.

The Confederation of British Industry (CBI) described the growth in January 2016 as “steady”, with clothing, furniture and carpets all down, although food saw growth. It looks like after 9 months of growth in spending, 2016 is starting to reverse the trend.

What do we need to do in the gun trade? I would suggest we need to ensure customers can easily finance their buys. Household income is coming under stress in the aggregate. Why not give it some relief? Offer financing on shotguns, rifles and airguns.


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