ALEX BRUMMER: Mind the UK output gap

The latest monthly output data tells us what we already know. When you allow often misleading health data to drive decisions on opening and closing down activity, confidence is battered and there is a stop-go impact on the nation’s output.

Sweden adopted a different approach to the pandemic because medical experts decided to look at health in the round and chose not to prioritise Covid over other conditions.

It has done worse than Scandinavian neighbours because it saved more lives among stroke victims, cancer patients and the elderly with common-or-garden flu.

Green shoots: The breakdown of the ONS data shows that the manufacturing recovery is going great guns and the sector climbed by 1.7 per cent month-on-month

The feeble 0.4 per cent rise in October GDP in Britain tells us that after robust 2.2 per cent and 1.1 per cent gains in the previous two months, the prospect of tighter restrictions on activity devastated prospects.

The current suggestion that London and parts of the south-east move into a higher tier in these, the final days of the holiday season, would be another act of self-harm.

The October data tells us a great deal about the shape of the UK economy and why we should not allow ourselves to gulled into thinking that failure in Brussels between now and Sunday, and chaos at the ports, would be the end of civilisation.

The breakdown of the Office for National Statistics data shows that the manufacturing recovery is going great guns and the sector climbed by 1.7 per cent month-on-month, and construction is up 1 per cent.

Car makers know how to make the most noise, but we shouldn’t forget that manufacturing accounts for 13.6 per cent of GDP, construction for 6.1 per cent and services a whopping 79.6 per cent.

Services, including the UK’s leading-edge financial activities, aren’t even getting a slither of attention in the current post-Brexit trade talks.

They have taken the brunt of the hit from the roller-coaster of restrictions with output rising by just 0.2 per cent and hospitality tumbling by a calamitous 14.4 per cent.

The only bright spot is a 2 per cent rise in entertainment and leisure from a diminished place.

The view in Whitehall that the City can take care of itself has some basis, but is not preventing Morgan Stanley moving £90billion or so of assets to Germany.

If there is comfort to be drawn from any of this, it is what GDP numbers do not tell us about the UK economy.

There is much services activity which simply is not being captured. Who is collating the value being created on Zoom, Britain’s Hopin and the Microsoft Teams website?

The music website Spotify has established its electronics payments arm in the City because it is British AI which is driving the fintech revolution disrupting traditional banking.

GDP offers guidance on how UK plc is doing vis-a-vis competitors. But it doesn’t deserve the totemic status it has acquired.

Eastern promise

The campaign by UK banks to lift the moratorium on dividends has paid off ,with the Bank of England giving the green light in spite of the pandemic and global Britain.

But if anyone was hoping for an immediate pop in the share prices, allowing the Government to rid itself of the NatWest stake, they will be disappointed.

Investors may well be waiting for a clearer reading on pandemic loans which have gone wrong and the beating taken by retail and the property.

If looks a little different from Hong Kong, where ordinary citizens are big holders in HSBC and Standard Chartered and actively campaigned against the perceived dead hand of the Bank of England.

Providing they can navigate very choppy political waters in Sino-Western relations, they could be winners.

Rich are different

Even the most ardent believer in free markets could not fail to gulp at the scale of money making in global finance.

It is no comfort that more than 60 per cent of the £835million of fees run up by the London Stock Exchange, in its bid for Refinitiv, are described as ‘financing related costs’, which means that they accrue to private equity firms such as Blackstone involved in historic debt packages.

The rest goes to the usual bevy of City hangers on including investment bankers, lawyers and PR advisers.

On the other side of the Atlantic, cornerstone investors in Airbnb could never really have believed that a business started with a letting of a San Francisco loft would end up worth $100billion in a pandemic year when hospitality has been pummelled.

Funny new world.