James Knightley, Senior Economist at ING, comments that the swings in oil prices and demand are pouring unnecessary confusion in the UK economy’s growth story as the current oil related deficit was only due to the large buildup in inventories due to low prices.
Key Quotes
“Swings in the oil price and oil demand is being felt in several data releases, which is confusing the story on the UK economy.”
“Last Friday’s UK trade report resulted in numerous newspapers highlighting the fact that the deficit hit a four-year high in 2014. The actual monthly number for December was just shy of £1.2bn worse than expected. This is all disappointing given the lagged effects of sterling weakness would normally be seen as boosting competitiveness and narrowing the deficit.”
“Instead, weakness in the Eurozone economy, the UK’s main export destination accounting for just under 50%, has been a huge drag while the fact that the UK’s oil output is just 30% of what it was 15 years ago means that the UK is importing substantially more energy products.”
“That said, there are reasons for encouragement. Strip out oil and the UK’s trade balance is now moving in the right direction and with the ECB taking aggressive stimulus measures and the Eurozone economy starting to show a bit of life (we expect 4Q14 GDP to rise 0.4% QoQ on Friday) there is some hope for this year.”
“Moreover, the large buildup in UK oil inventories, taking advantage of low prices, is unlikely to continue much longer so the oil deficit should also narrow.”
“Consequently, we suspect that trade will be much less of a drag on the economy in 2015, even though sterling has appreciated on a trade-weighted basis.”
Key Quotes
“Swings in the oil price and oil demand is being felt in several data releases, which is confusing the story on the UK economy.”
“Last Friday’s UK trade report resulted in numerous newspapers highlighting the fact that the deficit hit a four-year high in 2014. The actual monthly number for December was just shy of £1.2bn worse than expected. This is all disappointing given the lagged effects of sterling weakness would normally be seen as boosting competitiveness and narrowing the deficit.”
“Instead, weakness in the Eurozone economy, the UK’s main export destination accounting for just under 50%, has been a huge drag while the fact that the UK’s oil output is just 30% of what it was 15 years ago means that the UK is importing substantially more energy products.”
“That said, there are reasons for encouragement. Strip out oil and the UK’s trade balance is now moving in the right direction and with the ECB taking aggressive stimulus measures and the Eurozone economy starting to show a bit of life (we expect 4Q14 GDP to rise 0.4% QoQ on Friday) there is some hope for this year.”
“Moreover, the large buildup in UK oil inventories, taking advantage of low prices, is unlikely to continue much longer so the oil deficit should also narrow.”
“Consequently, we suspect that trade will be much less of a drag on the economy in 2015, even though sterling has appreciated on a trade-weighted basis.”
