Andy Haldane Chief Economist of The Bank of England was writing in the Daily Mail this week. "A year from now, it is realistic to expect growth to be in 'double digits' such will be the tennis ball bounce in the UK economy".
The Bank of England is forecasting growth of over 7% this year. That's already a stretch. Ten per cent plus growth next year would be pure fantasy land special. Economists are beginning to talk of an economy in double figures but more for inflation than GDP expansion.
CPI inflation hit 4.2% in the USA in April. Producer prices hit 6.8% in China, 6.2% in the USA and 5.9% in the UK, with more to come in next weeks UK data. In the UK our inflation cost models suggest inflation will move to 2.5% real soon. Our monetary models suggest inflation will rise to 4.0% next year. Central banks risk falling behind the curve in the pressure to increase rates. Not least in the UK were retail spending is now above pre Covid levels.
Restaurant and pub bookings are recovering rapidly. The housing market is currently "going gangbusters" [Haldane]. Households have accumulated almost £200 billion of forced savings, boosting consumer confidence and encouraging spenders to splash the cash. Asset prices, housing and cryptos appear to be the major beneficiaries.
The UK data for Q1 was released this week ...
The UK data for Q1 was released this week. Year on year output fell by around 5% compared to last year. In March, manufacturing output was up 5%, construction output was up 6%. Retail distribution was up 7%. The rally in the service sector will continue as accommodation, food, arts, entertainment and leisure sectors come on stream. For the year as a whole we expect growth of 6% this year. This may well be upgraded following the release of the more complete national accounts data next month.
A closer look at US Inflation ...
US inflation CPI basis hit 4.2% in April very much above forecast expectations. Markets took the hit, bond yields moved higher. Gold moved up. Cryptos moved lower. Elon Musk expressed concerns about the green credentials of Crypto mining.
Within the US data, much was made of the hike in second hand car prices, up by 20%. Really it was a story about oil. Gasolene prices and energy costs were up by almost 50% compared to last year. No surprise really. In April last year, Oil prices WTI basis were down at just $16.55 dollars compared to $62 dollars this year. On the 20th April 2020 traders were paid $38 dollars per barrel just to roll the surplus oil stocks away. The oil shock will ease through the rest of the year.This is one of the many reasons the Fed considers the inflation spike to be transitory.
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The Saturday Economist
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