forties pipeline Ineos
Work takes place to fix the Forties Pipeline System in Aberdeenshire

The not-so roaring Forties

Last week, strong performance for Britain’s manufacturing sector in the November figures led the National Institute of Economic and Social Research to revise up their estimate of economic growth during the final quarter of 2017.

The influential think-tank, whose models are used by the Treasury, now estimates that the economy will grow 0.6 per cent in the three months up to the end of December.

That would mean the UK economy grew by 1.8 per cent in the year as a whole, only down marginally from the 2 per cent in 2016 when the UK was the fastest growing economy in the G7.

But while a combination of stronger global growth and a weaker pound has boosted manufacturing there is a big reason to think Britain’s industrial production will not post as strong a performance as the numbers we already have suggest.

A hairline crack in the Forties pipeline system in Aberdeenshire that moves 450,000 barrels of oil a day from the UK’s offshore oilfields could reduce economic growth by about 0.2 percentage points during December.

Alan Clarke, at Scotiabank, estimates that the shutdown may lead to economic growth of just 0.2 per cent during the fourth quarter as the oil sector contracts sharply during the month due to the pipeline being shut down. That compares with his forecast of 0.4 per cent otherwise.

Of course, this will mean much more rapid growth during the first quarter of 2018 when the pipe was working just fine.

This week’s highlights


18.15: Silvana Tenreyro speech

Silvana Tenreyro, who joined the Bank of England’s Monetary Policy Committee last year, will be giving the 2018 Peston Lecture at Queen Mary University of London. The speech will be her first as a member of the MPC and will be called The fall in productivity growth: causes and implications.

The Peston lecture is named after Maurice Peston, who founded the QMUL economics department and is the father of the journalist Robert Peston. It has previously been given by Mark Carney, the governor of the Bank of England.


9.30: Inflation (December)

Inflation hit 3.1 per cent in November, meaning Mark Carney will have to write a letter to the UK chancellor explaining why the central bank missed its 2 per cent target. This was the first time the governor has had to write such a letter for five years.

Most economists believe the pass through from the fall in the pound to consumer prices will ease from here on out and inflation will gradually fall back. But the shutdown of the Forties pipeline and an explosion at an Austrian natural gas plant may have contributed to higher energy prices during December.


11.45: Michael Saunders speech

The Monetary Policy Committee member Michael Saunders will be giving a speech at the launch of the Financial Intermediary and Broker Association, a new trade body for the finance industry. Mr Saunders is one of the more hawkish members of the MPC, breaking with the consensus to vote for a rate rise at the August meeting, and with the majority in favour of a rate rise in November. 


9.30: Retail sales (December)

If you liked the shutdown of the Forties pipeline distorting the data for December, you will love Christmas. For the three months starting in November and ending in January it gets very difficult to work out the underlying pattern in retail sales as the distribution of spending between Black Friday, Christmas shopping and then the Boxing Day and January sales means growth can be quite volatile month to month.

The official figures showed retail sales growth unexpectedly rose at a month-on-month rate of 1.1 per cent in November when economists had expected growth of just 0.4 per cent. Sales of electronics goods rose particularly fast. Some of that growth is likely to be shoppers bringing forward purchases previously made in the sales or before Christmas and there could be payback during December.

Last week’s highlights

Carry on Carillion

Carillion, the outsourcing behemoth, spent last week on the verge of collapse. The company needs to find ways to write off some of its £925m debt if it is to survive. It is also being investigated by the Financial Conduct Authority over the timing of profit warnings it gave to shareholders.

At pixel time, ministers were meeting to discuss plans for handling a failure of the business, which has contracts for everything from the High Speed 2 rail link to facilities management for schools. Creditors rejected a restructuring plan on Friday and called for the government to step in. 

The Spanish Netherlands

The pound on Friday reached its highest level against the dollar since the Brexit referendum off the back of a Bloomberg report that the Dutch and Spanish government were planning to work together to push for a softer Brexit. Officials denied they were breaking ranks with the EU.

EU member states discussed the possible price for prolonging any transition beyond December 2020 at a meeting, while the UK government told financial sector bosses that it would prioritise financial services in any trade deal.

Melting markets

US financial markets started the year “melting up” in one investor’s memorable phrase, but this week they had a moderate melt as US debt, the dollar and shares fell on reports that China was rethinking its holding of US treasures.

There are other reasons to think the thirty-year-long bull market in bonds may be coming to an end soon, as US markets editor Robin Wigglesworth writes in a Big Read. But John Authers, chief investment commentator, says it is too soon to bet against bonds, populations are ageing and inflation is low. Still, he says, no one in the treasuries markets today has ever experienced a bear market. 

What the papers say

A National Bureau of Economic Research paper published last week found that when San Francisco residents voted to introduce rent control in 1994 it actually led to a fall in housing supply and an increase in rents. My colleague Kadhim Shubber discusses the paper on Alphaville here.

Bloomberg has a guide to five must-read papers from the American Economic Association’s annual conference, held last weekend, and, while we were away for Christmas, 13 top economists showed Quartz what their favourite bit of research from 2017 was. 

Sunday evening reads

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