UK Q3 2017 GDP Preliminary Estimate +0.4%

GreatApe

michaels wrote: »

Interesting - I would describe a one off change in the price level due to devaluation as neither good nor bad whereas a wage/price spiral would be bad inflation.



And it is the sort of bad inflation described above that the bank fears. Interest rates are not being increased due to the devaluation inflation blip but due to the change in the balance of labour supply and demand due to...brexit. This is difficult for the establishment to articulate because it admits that free movement has held down UK wages in the past so not surprisingly they are couching it in highly technical jargon.

Bottom line :
1) balance of EU migration has swung from strongly positive to potentially slightly negative and at the same time
2) the inflationary blip caused by devaluation has led to the public sector wage cap, another anchor on wages becoming politically unsustainable

Leading the bank to fear the really nasty sort of inflation, the sort where prices rise at the same time as output stagnates.

(Oh and there may be some truth in the suggestion that rates need to go up now so that they can be cut to boost the economy when the economy stalls due to rising rates and Brexit)

The BOE is foolish to have used and continue to use the headline unemployment figures. They should look at the 6 month unemployment figures.

While migrants add supply of labor they also add to demand of goods and services.
At best they might add a small surplus to supply of labor due to better age profiles.
What that would mean in practise is that perhaps for every 10 migrants that come 9 work on supplying the goods and services the other 10 and their families need and they only add a net 1 person to overall supply.

That isn't that much additional supply. If you think of increasing the retirement age by 1 year that adds about 2.25% net to the supply of labor. You would need about 10-15 million migrants to add a similar net supply in labor.

michaels

GreatApe wrote: »

The BOE is foolish to have used and continue to use the headline unemployment figures. They should look at the 6 month unemployment figures.

While migrants add supply of labor they also add to demand of goods and services.
At best they might add a small surplus to supply of labor due to better age profiles.
What that would mean in practise is that perhaps for every 10 migrants that come 9 work on supplying the goods and services the other 10 need and they only add a net 1 person to overall supply.

That isn't that much additional supply. If you think of increasing the retirement age by 1 year that adds about 2.25% net to the supply of labor. You would need about 10-15 million migrants to add a similar net supply in labor.

I don't think that can be right - if each worker met their own demand plus the demand of 1/10th of another person then surely we would need to have 90% of the population in employment and actually the figure is more like 50%?

Eric_the_half_a_bee

GreatApe wrote: »

The BOE is foolish to have used and continue to use the headline unemployment figures.

Unemployment has been very low for a long time now. If the BoE really paid a lot of attention to unemployment figures, they would have raised rates a long time ago. What they really care about is wage growth, and its impact in inflation.

GreatApe

michaels wrote: »

I don't think that can be right - if each worker me their own demand plus the demand of 1/10th of another person then surely we would need to have 90% of the population in employment and actually the figure is more like 50%?

I was taking that into account with the assumption that the average migrant has (or soon will have) a similar home life to the locals.

That is to say 10 million migrants = roughly half working half children/stay-at-home-mums/elderly etc

There is another way to get a first order of magnitude estimate.
UK is rouhgly 32 million workers 66 million population. That means 1 worker manages to support 2 people roughly. Or lets say each person consumes 1 unit and each worker produces 2 units.

So if a single migrant comes to the UK they produce 2 units and consume 1 unit so there is an excess of 1 unit

If a migrant with a family comes to the uk. eg one of my neighbors is a mother father and 3 small children only the father works the mother takes care of the babies. So in his case he is producing 2 units and his family is consuming 5 units so there is a deficit of -3 units

So it depends on the ratio of workers to dependents for the migrants.
If we import 1 million migrants, if 0.6 million of them are working and 0.4 million are children/mothers/elderly (that they bring or that they have in the uk).

That would add up to production of 1.2 million units and consumption of 1 million units to give a net addition to production of 0.2 million units which is a low lower than just looking at their 1.2 million unit production

Of course if anyone has any data to show the actual dependants vs workers of EU migrants we can have a better look but its not going to be too far off the first order model above

michaels

GreatApe wrote: »

I was taking that into account with the assumption that the average migrant has (or soon will have) a similar home life to the locals.

That is to say 10 million migrants = roughly half working half children/stay-at-home-mums/elderly etc

There is another way to get a first order of magnitude estimate.
UK is rouhgly 32 million workers 66 million population. That means 1 worker manages to support 2 people roughly. Or lets say each person consumes 1 unit and each worker produces 2 units.

So if a single migrant comes to the UK they produce 2 units and consume 1 unit so there is an excess of 1 unit

If a migrant with a family comes to the uk. eg one of my neighbors is a mother father and 3 small children only the father works the mother takes care of the babies. So in his case he is producing 2 units and his family is consuming 5 units so there is a deficit of -3 units

So it depends on the ratio of workers to dependents for the migrants.
If we import 1 million migrants, if 0.6 million of them are working and 0.4 million are children/mothers/elderly (that they bring or that they have in the uk).

That would add up to production of 1.2 million units and consumption of 1 million units to give a net addition to production of 0.2 million units which is a low lower than just looking at their 1.2 million unit production

Of course if anyone has any data to show the actual dependants vs workers of EU migrants we can have a better look but its not going to be too far off the first order model above

I think we can agree on this although the crucial bit is that ratio, I suspect for EU migrants there are fewer dependents than the general population as it is harder to uproot and work abroad if you have dependents and you are much less likely to bring for example retired parents (at least initially).

This may also be an example where controlled migration via for example a visa scheme looks very different to EU uncontrolled migration as there is the option to impose strict rules on dependents with the former whereas with the latter any dependents who are also EU citizens can come.

Strangely, currently the EU citizens in the UK have better rights to bring in their dependent parents than UK born British citizens.

GreatApe

Also inst the point that migrants should produce more than they consume else why have them in the uk.

I accept that to workers migrants might be annoying if they feel their wages are being depressed which will certainly be true on some sectors. But the majority of brits over their lifetime are not net producers they are net consumers so would benefit from the additional production of migrants.

Taken to the extreme you have places like UAE where almost none of the locals work a proper job they all get given government non jobs. The migrants outnumber the locals. Clearly the migrants are not depressing wages or conditions for the UAE locations none of the locals are cleaning the toilets waiting the tables or stacking the shelves

The migrants push the locals up the pay and status scale. Its not so clear in the UK because first gen migrants are not that big a part of the UK population but its clearly clear in places like the UAE. If the UAE had no migrants the UAE own children would have to wait the tables skin the fish and clean the toilets but instead they were pushed up to comfy government office jobs and let the migrants do the jobs they would rather not do

This is why I try to make the argument that migrants push people up the pay and job scales. If the migrants stooped gutting the fish and cleaning the hotels then the UK workforce would have to do it. That does not mean unemployed brits get jobs that means people who have better paid and easier jobs would get fired and have to take up the lower pay lower status jobs.

GreatApe

michaels wrote: »

I think we can agree on this although the crucial bit is that ratio, I suspect for EU migrants there are fewer dependents than the general population as it is harder to uproot and work abroad if you have dependents and you are much less likely to bring for example retired parents (at least initially).

This may also be an example where controlled migration via for example a visa scheme looks very different to EU uncontrolled migration as there is the option to impose strict rules on dependents with the former whereas with the latter any dependents who are also EU citizens can come.

Strangely, currently the EU citizens in the UK have better rights to bring in their dependent parents than UK born British citizens.

Yes perhaps its more likely that younger migrants make their way to the uk but once here they do not all become celibate for life. Don't the migrants have more children than the locals? Most the migrant families here I know have kids a lot of them born in the uk.

lisyloo

I suspect for EU migrants there are fewer dependents than the general population

Don't some young/fit/single migrants come here purely to make money (live frugally) for a few years and then go home to live like a king? (I appreciate the fall in sterling hasn't helped this group).

kingjohn

will an increase in interest rate likely lead to an increase in the value of the £ in comparison to euro & dollar?

michaels

kingjohn wrote: »

will an increase in interest rate likely lead to an increase in the value of the £ in comparison to euro & dollar?

Markets will price in expected changes. An increase this month is certainly odds on favourite so there will be little impact from the actual rate change. However the split of the vote (9-0 or 5-4) may have an impact as will the minutes which will likely cover discussion of when further tightening will be required.