No Chicken in Nando's, No Chips at Nissan, No shakes at MacDonald's. Empty shelves are increasing. The head of the Co-Op said food shortages were the worst he has ever known.
Evidently not a war baby, CEO Steve Murrells announced the group was reducing some ranges. The ability to get food into stores was hit by post Brexit migration rules and Covid challenges.
A lack of fruit pickers, food processors and lorry drivers to blame for part of the crisis, businesses are pleading for a relaxation of rules on visas and an acceleration of test and training for new drivers to ease supply problems.
This week, once again, the car industry reported production difficulties. Output fell by 37% last month. It was the worst July performance since 1956. Manufacturers "grappled" with the global shortage of semi conductors. TSMC, the Taiwan Semi Conductor Manufacturer moved to ease the supply crisis by hiking prices 20%.
Will empty shelves damage growth?
Not according to the latest "Forecasts for the UK Economy" published by HM Treasury. The average forecast for GDP growth in 2021 remains at 6.9%. The more expansive forecasts have been tailed back.
JP Morgan is now forecasting growth of 7.1%. Capital Economics expects growth of 6.7%. Goldman Sachs is even more nervous about prospects for the UK. The American Bank is forecasting growth of 7.1%. Our Saturday Economist central forecast, we may lower perhaps to 7.0% on the next data release in September. We still expect growth of over 5.0% in 2022, slowing to perhaps 3.5% in the following year, thereafter reverting to trend growth of around 2% in the years to follow.
Over the next five years, the economy will grow by over 20% in real terms and by over 30% in nominal terms. The additional revenues to the Treasury will be almost £250 billion in the period. The latest borrowing figures suggest the total borrowing this year could fall below £175 billion. In March the Office For Budget Responsibility was expecting borrowing to hit £234 billion.
Inflation fears are increasing. CPI inflation is expected to average over 3% in the final quarter compared to just over 2.5% expected last month. The July 2% CPI level reported is dismissed as an anomaly.
Our Labour Market Chart Book has an update on the latest data. Analysis of wage trends suggests rates of increases will fall towards 3% by the end of the year. We await with interest the end of the furlough scheme. I.6 million unemployed, 1.9 million on furlough and 1 million vacancies in the economy will make for an interesting unwind towards the end of the year …
Taper Tantrum ...
In the U.S. the Office of Management and Budget expects consumer prices to rise by 4.8% in the fourth quarter. This is up sharply from the 2% rise the Biden administration had forecast in May.
Inflation is always and everywhere a transitory phenomenon. Price pressures will ease next year. The consumer price index is expected to increase by 2.5% in the fourth quarter of 2022.
Markets awaited with interest the update from Fed Chair Jerome Powell this week, at the Jackson Hole virtual symposium. The central banker hinted the Fed could start scaling back stimulus this year. The inflation surge is expected to be temporary. There was no prospect of a rate rise anytime soon but some tapering of asset purchases could begin before the end of the year.
"At the FOMC's recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. The intervening month has brought more progress in the form of a strong employment report for July".
No taper tantrum in the markets. The Dow, S&P and Nasdaq closed up in the week. The S&P and Nasdaq closed at record highs. The Dollar moved lower against Sterling and the Euro. Ten year bond yields moved up six basis points closing at 1.32.
The Fed has made it clear rates remain on hold. The asset purchase tapering may be confined to Mortgage backed securities in the short term. The Central Bank will have to fulfill the role of "Buyer of Last Resort" of government bonds until the level of government borrowing falls within the capacity of the private sector. That may not be for some time yet.
The Warren Buffet Valuation index moved to a record high reflecting a near 90% over valuation compared to historical average. Don't Miss Our Special Update "Red Dots In The Sand: When Will Markets Collapse."
That's all for this week. It's good to be back. We have been working on our series on Digital Accommodation during the break with special updates for Premium Club Subscribers. We will be back with more next week. Want to be sure? Join the Club, become a Premium Subscriber, don't miss out …
The Saturday Economist
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