UK Economic Forecast -October 2015

11^th October 2015

Summary

Generally the UK economy remains buoyant as it has done over the last few months, but it still increasing dependent on mortgage lending for that growth.

Main Points

The money entering the real economy in August increased by 1.37%, based on a rolling quarterly measure, and this is a reversal of the fall in July. Based on the observed trend that changes to money entering the real economy are directly related to economic activity in the following 3 months, i.e. GDP before inflation is accounted for, we can say that GDP for the fourth quarter based on two months figures looks like it will be close to 1.1% growth in economic activity and with near zero inflation this should equate to a similar growth in GDP. This should be comparable to the preceding quarter's growth 2015-Q2 at 0.85% and 2015-Q3 at 1.0% as predicted by money in the real economy. However we are still waiting for the publication of the official figures to confirm this.

Data

This forecast is based on the theory developed in Wealth Creation and Wealth Destruction and further explored in my soon to be published book 'An Interesting Idea'. The data used to calculate the money entering the real economy are:

• Interest created money increased by £6,285m in August an increase of 0.29% to the money supply and in line with previous monthly increases..

• Saving increased by £6,913 in August compared to the £3,363 in July and this contributes to a contraction of the money in the real economy of 0.16%.

• Net increase in government spending over revenue was £11,547m compared to £1,959 for the previous month. This represents a net increase of 0.44% to the real economy although when the changes are averaged out over the last 12 months the level of government spending over revenue remains unchanged i.e. 0%.

Lending that on mortgages represented 68.1% and increase of 22 points on the previous month. This is up from 66.93% on the August and represents a continuation of the long term trend. The importance of this figure is explained here.

Based on the proportion of interest created money from mortgage lending underlying inflation lies at 2.47% a year but is not manifesting itself due to deflationary forces elsewhere in the economy, principally the fall in commodity prices and general constrictions on the money supply due to low interest rates.

Notes

The purpose of this forecast is to provide a confident validation for the theory developed in 'An Interesting Idea'. No responsibility is taken for the accuracy of this forecast.

Bank of England and ONS data sets have been used for this forecast.

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