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Today’s news on the state of households’ finances shows that incomes and saving recovered from the dips seen in Q1. With the financial position of households looking more sustainable, modest growth in consumer spending should continue. … Q2 sees …
26th September 2013
The final estimate of Q2 GDP left the quarterly rise unrevised at a decent 0.7% and timelier economic data suggest that the recovery has gained more momentum since. However, the news that the current account deficit reached a massive 5.5% of GDP at the …
The further strengthening of the CBI Distributive Trades Survey in September provides reassurance that August’s drop in the official measure of retail sales was just a blip. For now, rising consumer confidence and employment seem to be offsetting the …
25th September 2013
Today’s statement by the Bank of England’s Financial Policy Committee (FPC) lacked drama. While the Committee is keeping a close eye on developments in the housing market, the approach for now is words rather than action. In any case, with house prices …
Mark Carney’s forward guidance has been unsuccessful in convincing the markets that the Bank Rate is likely to remain on hold until 2016. Speeches from other MPC members in the last two days, indicating that a range of views exist within the MPC regarding …
24th September 2013
With recent data showing no sign of a pick-up in workers’ pay, the economic recovery looks promising for UK firms’ profits. But it is questionable quite how much this will aid in rebalancing the economy towards investment. … Will a rising profit share …
With UK gilt yields unhelpfully following US Treasury yields up in recent months, it was welcome that they followed them down last week. Admittedly, with the prospect of more QE receding and the recovery still strengthening, a further significant fall in …
23rd September 2013
While the summer’s prolonged hot spell may have distorted sales patterns, the underlying trend in consumer spending still looks quite positive. … Consumer recovery still looking …
20th September 2013
Following a run of disappointing monthly public sector borrowing numbers, August’s public finances data suggested that the economic recovery could be finally starting to make its presence felt in the fiscal numbers. … Public finances …
August’s fall in retail sales volumes may well reflect the impact of the summer’s prolonged warm spell, rather than any underlying weakness in shoppers’ desire to spend. That said, the first monthly fall in sales volumes since April could temper …
19th September 2013
September’s MPC minutes suggest that, despite the arguably disappointing impact of forward guidance, the Committee is happy with its policy stance. A resumption of quantitative easing (QE) before the end of the year now looks less likely, although we …
18th September 2013
Relatively strong growth in the workforce is one factor that should prevent the unemployment rate from falling quickly towards the Bank of England’s 7% threshold. An influx of workers from Romania and Bulgaria should support this growth, allowing interest …
August’s fall in CPI inflation marks another step towards the 2% rate we think it could reach early next year. An end to the squeeze on households’ real earnings remains in sight. … Consumer Prices & Producer Prices (Aug.) & Lloyds …
17th September 2013
Although there are worries that the Government’s housing schemes will push up house prices rather than activity, housebuilding has picked up and we expect it to give further support to the recovery. … Housebuilding should continue to support the …
16th September 2013
Households have done the bulk of the work in repairing their balance sheets, but we don’t think that they are quite there yet. Household debt as a share of income probably has a bit further to fall, which may prevent the consumer recovery from gaining too …
Last week’s numerous stories about estate agents dominating the jobs market were probably a bit over the top. In fact, the rise in both manufacturing and construction employment in the first two quarters of the year strengthened our view that the economic …
The recent slowdown in emerging market (EM) economies begs the question of whether UK exporters have shot themselves in the foot by expanding into these markets in recent years. However, the growth prospects of EMs are still more favourable than those in …
13th September 2013
UK consumers have endured the worst squeeze on their real incomes since the 1920s, but finally the end is in sight. We expect falling inflation, a rebound in productivity and some support from tax cuts to prompt real pay to start rising again next year. …
12th September 2013
The drop in the ILO unemployment rate to 7.7% in the three months to July is consistent with signs of economic recovery and takes the rate closer to the MPC’s 7% threshold. But with scope for a rebound in productivity and evidence that this is happening, …
11th September 2013
By choosing the unemployment rate as its threshold for forward guidance, the MPC has been criticised for using a fairly narrow measure of slack in the labour market. However, we doubt that this will prevent interest rates being kept at 0.5% for much …
10th September 2013
This report is only available as a PDF. Click to download. … But is it the right type of recovery for the Chancellor? …
9th September 2013
Past housing market upswings have all coincided with above-average rates of consumer spending growth. But it is easy to overstate the strength of the direct linkages between the two. Therefore, unless we have under-estimated the likely strength of income …
Concerns are building that the economic recovery is too reliant on an unsustainable boom in the housing market. But we think that this is giving the housing market too much credit for the turnaround in the economy. The current recovery is based on much …
The outlook for retailers’ costs is brighter than it has been for many years. That said, with only a weak recovery in household incomes in prospect and competitive pressures likely to intensify, retailers are likely to have to pass many of these cost …
6th September 2013
One criticism levelled at Robert Shiller’s cyclically-adjusted price/earnings ratio (CAPE) is that – for the S&P 500 at least – the denominator has been depressed by accounting changes. This has led some to conclude that US equities are overvalued. But we …
With Vodafone’s sale of its stake in the US telecoms company Verizon expected to deliver almost £24bn to UK investors, the potential impact has been compared to that of the Bank of England’s quantitative easing programme. But, in practice, any boost to …
5th September 2013
The Monetary Policy Committee (MPC) unsurprisingly left policy on hold today in the wake of its recent introduction of forward guidance on interest rates and the stronger economic news. But if markets continue to ignore its rate commitment, the Committee …
The run of positive economic news has continued, with quarterly GDP growth in Q2 revised up to 0.7% and August’s CIPS/Markit PMIs pointing to even stronger growth in Q3. The divergence between output and employment growth evident in the surveys suggests …
4th September 2013
With August’s CIPS/Markit measure of services activity rising to a six and a half year high, the UK economy’s dominant sector appears to be roaring ahead. But evidence that increased demand is being met more through higher productivity than rises in …
While August saw the BRC’s measure of retail sales growth slow a touch, another month of expansion should boost retailers’ confidence that a solid, if unspectacular, rise in consumer spending is entrenched. Meanwhile, the pick-up in house prices may be …
3rd September 2013
The long-awaited introduction of forward guidance has probably not had quite the impact the MPC was hoping for. We think that some members will vote to resume quantitative easing (QE) this month, although they are unlikely to muster a majority when the …
2nd September 2013
August’s CIPS manufacturing survey added to the proliferation of evidence indicating that the sector is recovering rapidly. Meanwhile, the most recent update on the usage of the Funding for Lending Scheme (FLS) indicated that the scheme is having a small …
Despite his best efforts in last week’s speech in Nottingham, Bank of England Governor Mark Carney failed to bring the markets any closer to the MPC’s way of thinking regarding the interest rate outlook and hence drive market rates lower. The obvious next …
The latest monetary indicators show that bank lending is starting to pick up. But July’s rise in lending is not as good as it seems, since it largely reflected firms swapping bond for bank finance probably in response to the rise in market interest rates. …
30th August 2013
Household borrowing is continuing to expand, but fairly modestly. Despite fears that the Bank of England’s commitment to low interest rates will spark another credit boom, the main problem still seems to be banks lending too little to households, rather …
The improving trend in consumer sentiment provides some hope that the recent rises in household spending will be maintained even though consumers’ real incomes are still being squeezed. … GfK/NOP Consumer Confidence (Aug. 13 …
Bank of England Governor Mark Carney gave an unambiguously dovish maiden speech today but he still seems to be fighting a losing battle against the financial markets. It is looking as though the MPC will have to back up its words with further action, such …
28th August 2013
August’s improvement in the CBI Distributive Trades Survey suggests that the underlying recovery in the retail sector has strengthened further. But the fact that retailers have been unable to push through price rises underlines our view that the consumer …
Consumers are still a fairly big driving force behind the economic recovery. This is a bit of a concern, given that spending has been funded by lower saving rather than rising incomes. However, last week’s breakdown of Q2 GDP showed that other parts of …
26th August 2013
Real household spending saw a further expansion in Q2, its seventh successive quarterly rise. But with earnings growth still subdued, the recovery’s foundations are hardly watertight. Nonetheless, growing consumer confidence and a ‘feel good factor’ from …
23rd August 2013
The second estimate of Q2 GDP showed that the recovery has been gathering momentum even more quickly than previously thought, with timelier data reinforcing that picture. It is looking better-balanced too. … GDP: Second Estimate & Expenditure Breakdown …
There seems to be a general view that the MPC is underestimating how quickly unemployment will fall to the 7% threshold set under forward guidance, helping to explain why markets expect interest rates to rise earlier than the MPC’s forecasts suggest. It …
22nd August 2013
Despite signs of life in the economy, July’s public finances data suggest that these are being slow to support the fiscal figures. Admittedly, the impact of the economic recovery on the public purse may start to come through soon. But for now, the picture …
21st August 2013
We are revising up our GDP growth forecasts in response to the continued improvement in the economic news. Although there remain some constraints on growth which will keep it sub-par this year and next, we still think that we could be seeing pretty rapid …
20th August 2013
Market rate expectations rose further last week following some positive unemployment figures and the news that the Monetary Policy Committee was not unanimous in supporting forward guidance in the agreed form. However, we still think that markets are …
19th August 2013
The recovery in consumer spending seems to be becoming more entrenched. While better weather has helped support sales, the underlying picture has also strengthened. Both retail sales and non-retail spending have continued to expand. And with growing signs …
16th August 2013
July’s rise in sales volumes to a new record high is a further promising sign that a consumer resurgence is in progress. But the pattern of sales suggests the sunny weather played an important role in driving purchases. And while the boost from the good …
15th August 2013
MPC member Martin Weale’s vote against the introduction of forward guidance will hardly help to reassure the markets about the strength of the MPC’s commitment to keep interest rates low. … MPC Minutes (Aug.) & Labour market …
14th August 2013
Although July’s fall in inflation was largely a reflection of unusual price movements in the same month last year, we think a sustained fall in price pressures is now in train. … Consumer Prices & Producer Prices …
13th August 2013
A notable development over the past year has been the further step down in the rate of nominal pay growth. This seems most likely to have reflected the previous slowdown in productivity growth, although pay growth may lag behind even as productivity …
12th August 2013
