Following our article last week on the manufacturing output and GDP data for the 3rd quarter, there are three other relevant series which were part of that release – investment, trade and productivity – and we have added the latest figures for profitability to this set of notes, although the latter is only for the 2nd quarter.
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UK Business Investment, 3rd Quarter 2024: Data on business investment from the Office for National Statistics (ONS) shows total business investment increased by +1.2% compared to the 2nd quarter of the year and was +4.5% higher than a year ago (Q3-23). The rolling 4-quarter total grew by +1.4%.
The breakdown by industry group won’t be available until the full National Accounts are published at the end of December but we can look at the split by asset type. There are five categories, of which “ICT equipment & other machinery & equipment” (ICT&OM) is the most relevant to us – the other headings are transport equipment (which includes new aircraft), dwellings, other buildings & structures and intellectual property products.
On a seasonally adjusted basis, spending in the 3rd quarter of 2024 on ICT&OM rose by +0.6% compared to the previous quarter but was -0.6% lower than a year earlier; the rolling 4-quarter trend shows growth of +1.0%. In the 3rd quarter, ICT&OM accounted for just over 29% of total business investment and was just over 30% if you take the average for the latest 4 quarters.
You can download the ONS Statistical Bulletin on productivity from their website at https://www.ons.gov.uk/releasecalendar (15 August) or request if from MTA.
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UK Trade, 3rd Quarter 2024: The latest trade data from the ONS shows that exports of goods (excluding trade in precious metals) were -2.5% lower than in the 2nd quarter of 2024 and -4,1% down on a year ago (Q3-23). On the same basis, imports of goods fell by -3.0% on the previous quarter but were +0.7% higher than a year earlier. With imports falling slightly more quickly than exports, the UK’s trade deficit in Q3-24 fell to £51.1 billion.
We have used the series that excludes precious metals (including non-monetary gold) because this can have some sharp swings that are not reflective of “real” trade.
Within the total, exports of goods to the EU showed a quarter-on-quarter reduction of -3.7%, while deliveries to the rest of the world only fell by -1.4%; on the same basis, arrivals from the EU were -3.1% lower than in the 2nd quarter and imports from the rest of the world fell by -2.7%.
By commodity, the fall in exports to the EU was mainly in fuels (crude oil to the Netherlands) and chemicals (organic chemicals to Belgium), partially balanced by a modest increase in deliveries of machinery & transport equipment (aircraft to Germany). For the rest of the world, the lower level of deliveries from the UK were concentrated in chemicals (medicinal & pharmaceutical products to the USA) and machinery & transport equipment (aircraft to Qatar).
For imports, the lower level of arrivals from the EU was in the categories for machinery & transport equipment (ships from Italy), fuels (refined oil from Belgium) and chemicals (medicinal & pharmaceutical products from Italy). The fall in imports from the rest of the world was due to a reduction in fuels (crude oil from the USA and refined oil from Saudi Arabia) and chemicals (medicinal & pharmaceutical products from the USA).
For machine tools, exports from the UK in the 3rd quarter were +4.4% higher than in the 2nd period of this year but -11.6% down on Q3-2023; the total for the first three quarters of the year is -10.0% lower than for January to September 2023. On the same basis, imports of machine tools were -20.2% down compared to the previous quarter and -3.6% lower than a year ago; for the first nine months of the year, they are -0.5% below the level in the same months of 2023.
For exports, there were similar trends for the EU and non-EU countries with declines of -12% and -8% respectively when comparing the January to September periods of 2024 and 2023. The EU accounted for 51% of UK machine tool exports so far in 2024. However, for imports, using the same comparison, arrivals from the EU grew by +7%, but non-EU imports declined by -10%, with the EU accounting for 62% of machine tool imports into the UK between January and September 2024.
You can download the ONS Statistical Bulletin on trade from their website at https://www.ons.gov.uk/releasecalendar (15 November) or request if from MTA.
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UK Productivity, flash estimate for 3rd Quarter 2024: The ONS published a flash estimate of productivity for the UK economy for the 3rd quarter and a detailed breakdown by industry for the 2nd quarter. Some care is needed with this data, especially the flash estimate for Q3, because of the difficulties that the ONS is having with the labour market data.
For Q3, output per hour worked (the preferred measure of productivity) was -1.8% lower than a year earlier (Q3-2023), although output per worker increased by +0.3%. Output per hour decreased because hours worked increased more rapidly (+2.8%) than output measured by gross value added (+1.0%).
Compared to the 2019 average level, reflecting the pre-Covid position, output per hour increased by +2.0% and output per worker by +2.1%. The increase in output per hour worked on this longer-term comparison comes because GVA output grew by more than the increase in hours worked.
These figures are for the whole economy and the current format of publication by the ONS does not allow us to see a breakdown for manufacturing or individual industries at a useful level of disaggregation.
You can download the ONS Statistical Bulletin and datasets on productivity from their website at https://www.ons.gov.uk/releasecalendar (15 November) or request if from MTA.
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UK Profitability, 2nd Quarter 2024: The ONS has just published the profitability data for the UK up to the 2nd quarter – bizarrely, although the data is quarterly, they are only publishing this once per year, so we will track the trends since the last data release a year ago.
The immediate headlines are that the net rate of return for all private non-financial corporations (PNFCs) was 8.8% in the 2nd quarter, down from the estimate of 9.0% in Q1-24; for manufacturing companies, the latest figure is 7.3% having been 7.2% at the start of the year.
For manufacturing companies, the net rate of return a year ago (Q2-2023) was 7.6% and it has been below this level in each of the 4 subsequent quarters. The most recent peak rate was in the 1st quarter of 2023 when the net rate of return for manufacturing reached 8.2% but this was still well below the pre-pandemic levels when the average rate was 12.3% for 2019 and 16.1% in 2018.
Private non-financial corporations (PNFCs) comprise UK continental shelf (UKCS) companies (essentially offshore energy companies operating around the UK) and other nonfinancial UK (non-UKCS) companies. Non-UKCS companies are further split into manufacturing companies, those providing non-financial services, and other industries including construction, electricity and gas supply, agriculture, and mining and quarrying.
The net rate of return is used to measure company profitability – this is calculated as the economic gain (profit) shown as a percentage of the capital used in production. “Net” refers to the rate of return after having accounted for the current value of capital consumed and capital stocks. “Capital consumed” refers to the decline in the current value of the stock of fixed assets (for example, because of depreciation).
You can download the ONS Statistical Bulletin and datasets on profitability from their website at https://www.ons.gov.uk/releasecalendar (13 November) or request if from MTA.