 So what happened in the house last week ...
An exciting week in the House of Commons last week. The Prime Minister returned triumphant from Strasbourg secure in the knowledge a deal had been secured to push her deal through parliament. Geoffrey Cox, Attorney General had to deliver the legal opinion to assure the DUP and the ERG of the validity of the back stop to the back stop. Alas it was not to be. When Jon Snow suggested on Twitter, the AG had rejected May's deal, Cox tweeted "Bollocks". He still had over two hundred characters in play, if more explanation was needed. Now we know, the tweet was the legal opinion on the substance of the latest amendment. There is a sense bewilderment among the fifth estate. Jon Snow harassed Matt Hancock (Health and Social Care) suggesting the government was "all at sea" over Brexit. Emily Maitlis rolled her eyes in dismay when confronted with the prevarications of Labour's Barry Gardiner. He was asked to explain Labour's policy on Brexit and the election manifesto. He did not or more probably could not. "People are tearing there hair out" a frustrated Maitlis exclaimed. The "Newsnight" interrogator made furious notes to cancel future broadcasting plans and make a career move to the Antiques Road Show. It is too easy to misunderstand just what happened last week. The house voted to reject May's deal but decided to reject no deal. Any deal would be better that May's deal and or no deal but no other deal has been been offered for the moment. The Prime Minister offered a free vote on the Government motion to stop Britain crashing out of the EU. The motion was amended by MPs to rule out a no deal. The free vote was cancelled. A three line whip followed. Some Tories were already in the pub. Greg Clarke, the business secretary defied the government whip and abstained. In trying to explain his actions, he said he was confused. As if ... Stephen Barclay, the Brexit secretary voted against the motion. A swift change of heart. He had closed the debate arguing for the motion in formal process. Parliament tried to take control of the Brexit process. A motion from Hilary Benn making him Prime Minister was defeated by 314 votes to 312. MPs voted against a second referendum. Jeremy Corbyn in a "Carpe Diem" moment declared he was now in favour of a "People's Vote", safe in the knowledge this was never going to happen. So what happens next? The Prime Minister is set to make a third attempt to win Commons backing for her deal on Tuesday. Her voice may have recovered, the DUP will be offered concessions on Airport Passenger Duty in Northern Ireland. The ERG may realize the risk of staying in the EU is becoming all too probable. Theresa May is set to ask the EU for an extension to the Article 50 process if the deal fails once again to make it through the house next week. The PM will ask for an extension until the end of June. In June of which year has not, as yet been specified ... Tariff Troubles Torment Trade ... With just two weeks to go to the departure date, the Government decided to release details of the new tariff structure on imports into the UK. Business is already dealing with the challenges of the threat to exports. Now HMG has chosen the moment to reveal the imminent threat from imports. 87% of total imports into the UK would be eligible for tariff free access. Some protection will be offered on beef, lamb, pork, chicken and some dairy products including cheddar cheese. Tinned Tuna will be subject to a 25% tariff. Ceramics and fertilizer will also face tariff hikes. Imported cars will be taxed at 10%. Bananas, sugar and certain kinds of fish will maintain current tariff levels, to "ensure that access for developing countries is maintained." Trade Policy Minister George Hollingberry said "If we leave without a deal, we will set the majority of our tariff levels to zero whilst maintaining tariffs for the most sensitive industries". The new structure would be temporary. The government will closely monitor the the effects of tariffs on industry and the economy during an initial twelve month period. Business was unimpressed. The steel industry faces extinction, it does not appear to be a "sensitive industry". TUC General Secretary Frances O'Grady warned of a "hammer blow" to industries and communities. NFU President Minette Batters warned of the risks to domestic farming and a great reliance on overseas production with no control on animal welfare. Carolyn Fairbairn Director General of the CBI described the move as a "sledgehammer" for the UK economy. "What we are hearing is the biggest change in terms of trade for this country since the 19th century imposed on the country with no consultation with business and no time to prepare. " "This is no way to run a country." So who will run the country once Theresa May has gone ... Brexit Bonus in the bag ... Boris Johnson is the people's choice to become the next Prime Minister according to latest polls. Jacob Rees-Mogg is a close second. Nowhere does Phillip Hammond feature. The Chancellor of the Exchequer delivered his Spring statement this week. A sea of calm in an ocean of torment. The race to inanity delayed for a few moments at the despatch box. The Treasury offered a Brexit bonus in the event of a no deal, or in the event of an agreed deal for that matter. The OBR had delivered the March "Economic and Fiscal Outlook". Good news for the Chancellor on borrowing. The deficit will fall to around £22 billion in the current year. Debt as a % of GDP is set to fall in the years ahead. Growth will be around 1.2% this year, rising to an assumed trend rate 1.5% over the forecast horizon. Job prospects remain high, earnings will average 3.5%. Inflation will remain at or around trend rate. Real earnings will rise boosting household incomes. House prices will be flat through the year, pushing back the price earnings ratio to some semblance of normality. The Chancellor was in giving mood. More money for the police service. More money to challenge period poverty in secondary schools. The Chancellor pledged an end to low pay and an increase in the living wage. Visitors from North America, South Korea and Singapore will be able to use e-gates at ports of entry into the UK. Great news, this a process most of us have struggled with since introduction. Chancellor Hammond, spreadsheet Phil, a steady pair of hands above the "Banality of Brexit." Promises on the side of a bus, "Who governs Britain" the question at referendum. That's a great question we continue to ask today ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John
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 China Trade Data Adds to Fears ...
The world economy had a rough week, according to Bloomberg headlines today. "China and US deal blow to world markets" according to the Times. Is there any hope for the future? US markets fell by 2% in the week as the Dow, S&P and Nasdaq shared the impact of disappointing jobs data. South East Asian markets fell. China trade data in February suggested a radical slowdown in trade with the USA. Lower imports contributed to fears of a slow down on the Chinese mainland. Chinese stocks were down 5% in the week. You have to be quick in the markets. Last week China was the darling of growth. Up weighting within the MSCI index did produce a short surge in prices as tracker funds bought into China's superstars. Profit taking and fears for the short term provided a basis for a reassessment. As always the short term bears had some fun. Fundamental traders will stick with value in the East. It was left to Mario Draghi to be the cheerleader for the West; Think José Mourinho running the United Supporters Club. The ECB downgraded forecasts for growth in the EU area. Rate rises are off the table for the central bank until 2020 at best. Further QE is not expected. The bank announced a further round of short term funding for the banking system. TLTRO 3 is coming. It sounds like a LEGO Movie series. It actually represents "Targeted Longer Term Refinancing Operations" a means of providing discounted funds into the banking system. The ECB is worried about growth prospects in the world economy generally and in the EU area specifically. World trade appears to be slowing, growth is allegedly slowing in the US and China. Trump's trade war with China is creating problems within the US and China. Brexit uncertainty is damaging investment and trade prospects for the UK and Europe. Central banks are accommodating slowdown. Further rate hikes are off the table in Europe, the UK and U.S.A. China is cutting domestic rates to stimulate demand. Monetary policy and fiscal policy do not suggest any real slow down in the economy any time soon. Political folly is to blame for the uncertainty. Brexit is a shambles as is The President's trade policy. The wounds are self inflicted but for how long can the self abuse continue ... US Jobs Data Disappoints ... Another Tough week for the President of the United States. Last week, Janet Yellen former chair of the Fed explained that Trump has little grasp of economic policy. This week Paul Krugman, American Economist and columnist at the New York Times explained the President has little grasp of international trade. No real surprise there! The President had promised to reduce the trade deficit. In 2018, the trade deficit ballooned to $891 billion. The highest level in US history. Despite the introduction of tariffs, to reduce the level of imports, the trade deficit with China and the rest of the world increased. Dollar strength and relative rates of growth in the US versus the rest of the world explain the deficit expansion. Trump's $1.5 trillion tax cut fueled domestic demand and the propensity to import. Markets were relatively unmoved on the news. The twin deficit dilemma will return to haunt markets in the medium term. Growth in the US was 2.9% last year. This year, growth is expected to slow to 2.5%, it could well be higher as we have explained. (Growth in Q4 was 3.1% year on year). The real shock came with the jobs data for February. The number of jobs created in the economy slumped to just 20,000 compared to the 200,000 expected. 30,000 jobs were lost in the construction sector. The good news, earnings increased by 3.4% as participation rates continue to increase. The unemployment rate fell to 3.8% in the month. So what can we make of the February jobs data. Not much is the real answer. Payroll growth was over 300,000 in January and 227,000 in December. Over the three months job gains were 186,000. Construction jobs were up by over 50,000 in January. Can we really believe there were 30,000 layoffs in the following month? Monthly data in isolation is often too noisy. A break in trend should be treated with suspicion. The world economy may appear to have had a rough week. The fundamentals remain in place. The world economy will grow by 3.5% this year, underpinning the continued expansion in world trade. Trump's economic credentials are discredited. A reduction in tariffs is called for in a resolution of the trade war with the East. Lambs to the Slaughter ... Good news, Greggs announced it has stockpiled ingredients for the vegan sausage roll ahead of a no deal Brexit. The share price was still down in the week. Fickle markets have no heroes. Not so good, no deal Brexit threatens a cull of ten million lambs, the revelation in the Times this week. Tariffs would rise on trade with the EU, closing the vital export market for UK farmers. The proposal to eliminate tariffs on food imports would compound the problem for domestic agriculture. UK officials have told farmers almost half of the lambs reared each year may have to be slaughtered, burnt and buried on farms in the event of a no deal. British lamb may fall foul of EU hygiene rules. They may face a 45% surcharge if the full tariff is implemented. It is an horrendous scenario with now less than three weeks to deadline. BMW added to the traumas in the car industry this week. The future of the Mini will not in Cowley lie, in the event of no deal. Honda, Nissan and now Toyota have made the position clear. What use is a gateway to the Europe when the ports are closed to trade. It may have come a surprise to Dominic Raab, Brexit Secretary, the importance of trade between Dover and Calais. Just as it was a shock to Northern Ireland minister that Nationalists don't vote for Unionists in the province. How great the shock will be if Liam Fox determines to slash tariffs on food and manufactured goods in the event of a no deal Brexit. The impact on many industries would be devastating. No time to adjust to the flood of product into the UK. Brexit "Après ça le deluge", will be the reality for farmers and manufacturers alike. It is time to call for an international trade crimes commission. Who would you most like to see doing the perp walk? We already have a great list for that early morning wake up call ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  A Racist, A Conman and a Cheat ...
Tough week for the President of the United States! The leader of the free world was accused of being a racist, a conman and a cheat by his own personal advisor. Michael Cohen was before the Congress oversight committee. He had worked for Donald Trump for a period of twelve years, serving as a vice president on the Trump organisation. Working as Trump's personal counsel or "consigliare" he was widely regarded as fixer or enforcer for the now President. It was Cohen who had arranged payments to adult film star Stormy Daniels and Playboy model Karen McDougal to prevent them from discussing allegations of affairs with Trump. It was Cohen who was charged with the responsibility to threaten schools and colleges not to reveal SAT scores or any record of Trump's academic performance. What could the oft proclaimed smartest guy in the ring have to fear? Cohen revealed how Trump had inflated statements of net worth to secure banking loans, deflating asset values, when it suited to mitigate tax payments. Cohen revealed Trump had decided to run for President with little expectation of winning. It was to be the biggest brand exercise in history. The biggest "infomercial" in the campaign of campaigns. A campaign of self interest, ask not what your country can do for you ... Trump was well aware what the run for President could do for the Trump organization. Not least, a boost to brand value, estimated (by Trump) at $4 billion in 2013 and Trump hotels in Moscow and Pyongyang perhaps. Cohen had once said he was ready to take a bullet for the President. The spectacle of Trump's one time enforcer now denouncing him in televised proceedings detailing a "catalogue of cruelty and crimes" was truly shocking. Republican diehards denounced Cohen. "Liar, Liar Pants on Fire" the not so sophisticated poster taunts from within Congress. He is a rat "lying to reduce his jail time" Trump proffered from Hanoi. No denials or response to the accusations made. Attacks on Cohen, his wife and family the flavour of the day. Some of the language was reminiscent of "The Godfather" and not "The West Wing". "I am a liar but not lying" claimed Cohen. Trump diehard supporters have already made up their minds, the Grey Suits in the GOP may not be so sure. The Art of the Deal ... Tough week for the President of the United States. The master of the art of the deal came a cropper in Hanoi this week. The President had been spurred on by hopes of the Nobel Peace Prize allegedly sponsored by Japan's Prime Minister Shinzo Abe. It was "heel spurs" that enabled Trump to avoid the draft in a previous attempt by Uncle Sam to get Trump to Vietnam. It was "ego spurs" that led to the trip this time round. "Trump in Vietnam, getting killed at home by Cohen" the irony was not lost on Seth Myers the master of US political satire. Trump made the flight on Air-Force-One, Kim Jung-un made the 66 hour trip by train, a distance of over 2,000 miles. Despite an amicable series of meetings, the summit ended in confusion. The Americans had wanted an end to nuclear weapons in North Korea, the North Koreans had wanted an end to sanctions against the regime. The propositions were unacceptable to either side. Aides had warned of intransigence with little hope of a deal on the day. It was an act of theatre to distract from the issues at home for Trump. Kim Jung-un expressed confusion about aims and objectives of the negotiation. Not for the first time confusion about Trump's "Art of the Deal" followed inconclusive talks. "Sometimes you have to walk" explained Trump. "At least I get to fly back on Air Force One" he should have added. Trump's art of the deal came under further question this week. Tariff Man Trump is having second thoughts about the trade war with China. The deadline for the introduction of further tariffs was extended. By the end of the week, Trump asked China to remove tariffs on US agricultural goods. China's retaliation against U.S tariffs has hit American farmers badly. Exports to the mainland are expected to fall by over 50% from the $20 billion recorded in 2017. "This is very important for our farmers and me ..." explained Trump. Janet Yellen former chair of the Fed explained that Trump has little grasp of economic policy and the role of the Fed. For many over there, including the farmers, it is becoming an expensive lesson in learning ... Good news on growth ... Some good news for the President this week. US economic growth in 2018 was confirmed at 2.9% up from 2.2% prior year. Growth accelerated through the year. On our preferred year on year measure, growth in the final quarter was 3.1% compared to 2.6% at start of year. Investment surged by 6%, Consumer spending was up by 2.7% Exports increased by 4%, imports increased by 4.6%. The trade deficit is increasing as domestic growth sucks in a higher volumes of goods. Most analysts expect growth to slow in the current year to around 2.5%. If the trade issues with China are resolved, growth may then be higher. The trade deficit will continue to deteriorate. The internal deficit, will continue to expand. Trump has brushed off deficit concerns, whilst pushing through extravagant tax and spending plans. Now with the Democrats in charge of the house, Trump is expected to become the champion of fiscal responsibility as a series of clashes are likely in the months ahead. Trump may not know much about economics but he does have an eye for appeal at the polls ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Borrowing falls ...
January surplus was highest on record, according to the latest data from the Office for National Statistics. January is the month of biggest surplus for the Treasury. Receipts are boosted by payments of self assessed income tax, capital gains tax and corporation tax. This financial year 2018/19, the January surplus was a record £14.9 billion, an increase of almost £6 billion compared to prior year. For the year as a whole, borrowing was £21.2 billion. That's down by almost half compared to the same period last year. In the last financial year, total borrowing was £42 billion. In November the OBR projected a deficit of £25 billion for the current year. With just two months to go, the Chancellor is on track to reduce borrowing to around £22 billion. That's a modest 1% of GDP, compared to almost 10% of GDP at peak of cycle. Last week we talked of the strong growth in retail sales. VAT revenues are higher in the year to date, up by 5% on prior year. Later we report on the strength of the jobs market and the boost to earnings. In January, income tax and capital gains taxes were £31.4 up by 11% on prior year. Total revenues to the exchequer are up by 4% so far this year. Total spending was up by just 2%. Strong receipts reflect strong growth in the economy. Spending controls, with some counter cyclical kickers, explain the small increase in spending. The strong results for the Chancellor, do not suggest an economy which is about to keel over any time soon. The big overhang of course is Brexit. Self inflicted wounds are the most harmful. Time to make the deal and let the good times roll ... Earnings rise ... Good news from the job market this week. The unemployment rate in December was just 4%. The number out of work was 1.36 million down by 100,000 compared to prior year. The number in work was 32.6 million, up by 440,000 compared to December 2017. There were an estimated 844,000 on zero hours contracts in their main job, down by almost 60,000 over the same period. More people in work, earning more money. Whole economy earnings were up by 3.4% in the three months to December. Private sector pay was up by 3.5%. Public sector pay was 2.8%. Construction pay was up by 4.3%, a measure of jobs compression in the sector. The good news for Brexiteers, workers from the EU are returning home. The number of EU workers fell by 60,000 to 2.3 million by end of year. Not so good news for those taking back control of our borders, numbers from Africa and Asia increased to plug the gap. As with all things, be careful what you wish for. Wages are rising ahead of inflation Real income growth in the first quarter will b e1.5%. Recruitment difficulties are increasing. The number of vacancies in the economy increased to 870,000. That is a remarkable number when we consider the peak at previous cycle was just 700,000. Recruitment difficulties are particularly high among leisure, health and social workers. They also appear to be acute in the financial and insurance sectors. A sector deemed to be vulnerable to Artificial Intelligence. A jobs market which is overheating with wage growth ahead of inflation. This is not a sign of an economy which is about to keel over any time soon. Brexit remains a real threat to the UK and European economy. Self inflicted wounds are the most harmful. Brexit together with Trump trade wars and the Tariff Man's penchant for punitive action, the clear and present danger to healthy world growth. It is time to make the deals and let the good times roll ... Make the deal ... Signs the White House is ready to make the deal with China this week. The President needs the deal. Faced with a legal challenge over the national emergency and the Mueller challenge over a more local matter, Trump needs a deal with China on trade and with North Korea on peace, to maintain momentum into the second half of his "first term". The trade policy is not working, the US trade deficit is increasing. Tariffs are creating difficulties for US farmers and manufacturers alike. Trump may claim, that China is paying "billions" in tariffs to the U.S. Treasury. The reality is the tariffs are paid by importers into the US not by the government of China. Importers pass on the increase in prices, to trade customers and ultimately consumers. It is the American consumer, footing the bill for Tariff Man's tantrums as domestic prices rise. There is little or no substitution effect from the trade tariffs. The billions raised have been offset by billions spent. China has stopped buying American soybeans, pigs, cotton and other produce from Uncle Sam. Revenues from the tariffs have been offset by payments the government has had to make to farmers to compensate. In Europe, car manufactures are threatened by a 25% tariff on imports to the USA. The EU will respond with restrictions on Caterpillar construction equipment and Levi jeans. The President cannot afford a trade war with Europe. It cannot afford a trade war with China for much longer ... It really is time, to make the deal and let the good times roll ... before irreparable damage is done ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John In just a few weeks time, I shall be speaking on life after Brexit at the Northern Business Expo. Just click on the link ... the code word is Brexit to secure your FREE tickets ...  Fox secures Fish ...
The prospects for truly global Britain, forging an invisible chain for free trade and democracy, received a real boost this week. Liam Fox, the international trade secretary was able to announce a trade deal with the Faroe Islands. There has to be some payback for the £1 million plus spent by his department on overseas trips and missions to valuable markets abroad. Almost 400 trips have been made in the period since the referendum. Talks with China may not be too relaxed following news the Defence Minister Gavin Williamson is to send his brand new aircraft carrier to patrol the Pacific in 2020. "The UK is a global power with truly global interests," Defense Minister Gavin Williamson said "Since the new global great game will be played on a global playing field, we must be prepared to compete for our interests and our values far, far from home." "China is developing its modern military capability and its commercial power," Williamson said. Tensions in the Pacific are set to rise as China escalates claims in the South China Sea. Trade talks may be put on hold as gunboat diplomacy returns to Britain's foreign policy arsenal. For the moment, the Faroe islands will feature in truly global Britain's future. Total trade with the Faroe Islands was worth about £250 million last year. Fish and crustaceans made up the vast majority of imports, worth over £200 million. Total exports in return were worth about £6 million. Three additional deals have also been secured at the moment, to offset the loss of the EU's forty deals with some 70 countries. Switzerland, Liechtenstein and Chile feature as part of the "New Deal" scenario. Still much work to be done to secure the trading future of the UK ... for the moment the Fox has secured fish, with some crabs and prawns for starters ... Retail Sales Bounce Back ... Retail sales bounced back in January, following tales of a dismal period over Christmas, Sales volumes increased by 4.2% year on year. Sales values increased by 4.5% in the same period. Online sales increased by 10% accounting for 19% of total retail sales. Clothing and footwear sales were up by over 5%. Household goods store experienced little or no growth. It is easy to fall into conventional narrative of a slow down in household spending as consumers fret about Brexit. It didn't really happen in January. According to the latest GfK Consumer Confidence survey for January, consumers may be worried about the economy but they are less concerned about household prospects for the moment. It remains for many a good time to save and spend. A strong job market, rising vacancies, and earnings rising ahead of inflation will maintain activity in the short term. The falling rate of inflation will continue to boost real incomes. Inflation CPI basis fell to 1.8% in January from 2.1% prior month. The headline rate is flattered by a big fall in goods inflation to 1.3%. Service sector inflation was 2.5%. Service sector inflation together with Sterling weakness is one reason why we expect inflation to be above target towards the end of the year. Wage inflation will assist in pushing the headline rate up. Producer price inflation slowed in the month. Output price growth fell to 2.1%, input costs slowed to 2.9%. Subdued oil prices assisted the muted developments in cost prices. Imported food costs were up by almost 7% as Sterling fell, other import costs, materials, metals and chemicals were up by 4% on average. The inflation story is by no means over. There still remains the prospect of a further base rate rise this year assuming a resolution of the article 50 conundrum can be found ... See You In Court ... A cross party resolution was found to the funding crisis in the US. Democrats and Republicans together secured a deal to avoid a further Federal shut down. Trump was a reluctant signatory to the agreement. Just $1.4 billion was offered to build the wall for which Mexico was always supposed to pay. Trump was forced to swallow the biggest surrender on policy for his presidency to date. It was a short roll over. The President reacted by declaring a "National Emergency". Funds will be found from military and national emergency reserves within Presidential special powers. This will fill the gap in funding for physical construction along the Southern border. Trump announced the National Emergency in The Rose Garden. The "chosen backdrop for pitching defeats as victories" according to the New York times. A legal challenge will follow from the Democrats and elsewhere. The decision to declare a national emergency will drag on for weeks and months. It is a familiar act of distraction and digression with a modicum of entertainment. Democrats claim the action is evidence of a rogue President who has finally gone to far. It is a clear challenge to the separation of powers within the constitution of the USA. This week the FBI revealed they had examined the prospects of an execution of the 25th amendment as Trump abused McCabe and Comey in Hoover's treasured heartland. During the 50 minute meandering Rose Garden new conference, Trump offered little evidence to support the idea there was a crisis at the border. White House lawyers had advised against the move fearing the legal risks of proceeding. Trump explained the legal ramifications of his move .. "Look I expect to be sued", Trump said, "they will sue us in the 9th circuit, we will possible get a bad ruling, then we will get another bad ruling and then we will end up in the Supreme Court. There we will hopefully get a fair shake and win". Yes a fair shake and a win ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Bank Downgrades Forecast For Growth ...
It is the week of the Inflation Report. No surprise, the MPC held rates with little prospect of an rate hike in the months ahead. "There is a story" the Governor began his opening remarks, "There is a story, that almost a century ago, The Times ran the headline 'Fog in the Channel, Continent Cut Off'". The Governor went on to reassure, that cutting off the continent was not the objective of Brexit. The UK is leaving the EU, not leaving Europe. "We will pursue an ambitious and broad economic partnership", he explained. With just fifty days to go, with no deal in sight, the Governor obviously knows something, the rest of us, including Parliament, do not. It was a week in which Chris Grayling had been cut off from Calais. The Chairman of the French port authority had said, "The Transport Secretary has been disrespectful, I never want to see him again". Grayling plans to cut capacity through Dover and Calais. Capacity will be increased in other directions and by other means. More effort will be made to increase trade from Ramsgate to Ostend. A decision to award part of the £100 million contract to Seaborne shipping was reversed this week. A shipping company without ships, without experience and finance was considered to be a Bridge Too Far even for this administration. Fog over Brexit has cast a cloud over the Bank of England. The Bank has cut the forecast for growth to just 1.2% this year. There is a one in four chance of recession if the UK leaves the EU without a deal. Fears over a no deal are haunting the board rooms of Britain. Investment decisions are on hold pending the outcome of negotiations with the EU. The good news? Inflation will remain at or around the target 2% and job growth remains strong as businesses continue to hire ... for the moment ... Automotive trade ... Another week of bad news for the auto industry. Nissan announced the decision to pull the planned manufacture of the X-Trail in Sunderland later this year. The head of Nissan Europe Gianluca de Ficchy said: “While we have taken this decision for business reasons, the continued uncertainty around the UK's future relationship with the EU is not helping companies like ours to plan for the future.” Jaguar Land Rover had previously announced job losses as a result of falling sales in China and elsewhere. This week, Tata Motors, the parent of JLR announced a $3.9 billion write down on the JLR investment pushing the Tata share price down by 30% at one stage. Credit rating agency Fitch placed the company on negative watch. "Trade barriers and logistic issues from a disorderly Brexit could have an impact on JLR's competitive position, leading to lower sales and profitability" Fitch said. Will Corbyn ride to the rescue? This week the Labour party outlined five steps required to secure the agreement of the opposition in the pursuit of a deal with Europe. Inclusion in the single market and a customs union feature. The Irish question would be answered. The hopes of remainers on the opposition benches dashed. Many believe Corbyn would welcome a hard Brexit. An olive branch to settlement, offered by the hand of a Brexiteer may be a twig, first dipped in a poisoned chalice. Either way, this week the Prime Minister was too busy in a whistle stop tour of Belfast, Dublin and Brussels to listen to a possible solution from the opposition. The conundrum continues, the clock is ticking. The lights are going out all over Europe ... we shall not see them lit again in our lifetime ... State of the Union... The President finally made it to Congress this week to deliver the State of the Union address for 2019. It was a tough audience. Nancy Pelosi looked on, as Donald Trump spoke to the Majority Democrat house. Trump issued a call for unity as he warned that the "politics of revenge" and "ridiculous partisan investigations" threatened to derail the "economic miracle" taking place in the United States. The US president, appealed to Democrats to reach a compromise on paying for his proposed wall on the Mexico border. "We must choose between greatness or gridlock, results or resistance, vision or vengeance, incredible progress or pointless destruction. Tonight, I ask you to choose greatness." [to choose me] "Victory is not winning for our party. Victory is winning for our country. Embrace the boundless potential of cooperation, compromise and the common good. An economic miracle is taking place in the United States and the only thing that can stop it are foolish wars, politics, or ridiculous partisan investigations. "If there is going to be peace and legislation, there cannot be war and investigation." Time to stop the Mueller investigation now ... the obvious plea. The biggest cheer of the day was from the newly elected women democrats dressed in white, a tribute to the suffragettes of old. When Trump boasted of his success in increasing the number of women in work in his thriving economy, Nancy Pelosi pointed to the left in Congress. The ladies rose as one, evidence of the President's achievement ... more women in work, in opposition to the Trump administration. USA, USA, they chanted, "You weren't supposed to do that" said the President. Not for the first time he had missed the point ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Production and Investment Falls ...
The car industry issued it's starkest warning yet about the implications of a no deal Brexit. Production in 2018 fell by 9% to 1.5 million units. Investment fell by almost 50% to a level of £588 million. Almost two thirds of the UK's global car trade could be at risk from a "no deal scenario". UK companies are urging all politicians to do "whatever it takes" to maintain a trade deal with Europe. Production for the home market fell by 16%. Export sales were down by 7%. Approximately 80% of output is exported, part of the highly integrated trade with Europe. No deal will lead to a radical realignment of supply chains. No longer will parts pass several times across the Channel. Consolidation within Europe will be the guideline. There will be a significant loss of capacity in car assembly in the UK with implications for the wider domestic supply chain. With just eight weeks to go to the March deadline, the IOD warned this week that one in three members are considering geographical diversification into Europe. Business is preparing for no deal. This week the PMI Markit Manufacturing Survey reported record stock piling as Brexit preparations continue. The manufacturing sector made a lack lustre start to 2019, as trends in output and new orders slowed and employment fell for only the second time in the past two-and-a-half years. Companies reported Brexit preparations led to sharp rises in both purchasing activity and stockpiling of inputs at warehouses. A rise before the fall. We expect manufacturing output to grow by just 0.9% this year. Alternative Arrangements ... Good news for Theresa May this week. The Prime Minister was successful in persuading the Tory party and the DUP to vote once again against the Brexit deal recently presented to Parliament. According to Matt Chorley in the Times Red Box ... "It was a victory for the Prime Minister after persuading the Tory party to vote against the deal she had spent most of the Winter trying to sell to them." A victory indeed. The pitch was simple. The PM's deal, the only deal on the table, the only doable deal, agreed by everyone in Europe and most in the party, expect the ERG. Well don't vote for that deal, vote for something else. Don't vote for no deal. Don't vote for a delayed deal. Vote for a new deal. But what? It was left to Sir Graham Brady to save the day. An amendment demanding the Irish backstop be replaced was presented. The "Brady Word Bunch" provided consensus. "Parliament has made it clear the basis of an agreement" explained the Prime Minister. The Irish backstop is unacceptable. Alternative arrangements must be made. We don't want a backstop, we want something else, the House has voted. Something else ... but what, we are not exactly sure. As the Prime Minister had earlier explained, "On the point which divided us, we have not made up our own minds. We could not pretend to give a decided lead to anyone." The Prime Minister was Arthur Balfour. The year was 1903. The issue was trade policy with Europe. The Tory party was once again divided. The Prime Minister was manoeuvring desperately to keep the party together. Over one hundred years later, here we are again, sometimes we wonder why ... God wanted Trump to be President ... No self doubt in the White House this week. Press secretary Sarah Hallelujah Sanders claimed on Wednesday Trump's presidency is part of a higher calling. "I think God calls all of us to fill different roles at different times. I think he wanted Donald Trump to become President." Sanders claimed during an interview with the Christian Broadcast Network. "That's why he is there. I think he has done a great job in supporting a lot of things that people of faith really care about." Trump is widely expected to make a big anti abortion play in the State of the Union Address next week. The President's ratings are plummeting. "God on our side" "War with Russia" and an appeal to the "Pro Life" group part of the new electoral pitch apparently. This week the administration announced withdrawal from the Nuclear Treaty with Russia according to Mike Pompeo and support from a higher authority according to Sarah Sanders. Press briefings in the White House abandoned for the time being. Why talk to the press when you are in communication with a supreme being in the Oval Office. This week Trump was irritated by US security heads. Director of National Intelligence Dan Coats and CIA Director Gina Haspel both indicated on Tuesday there is significant distance between the president and the intelligence community on major issues. They testified the Islamic State remains a forceful presence in Iraq and Syria, North Korea is unlikely to give up its nuclear weapons and that Iran is not seeking a nuclear weapon. Taking the advice on board, the President attacked once again the U.S. intelligence community. "The intelligence people seem to be extremely passive and naive when it comes to the dangers of Iran" Trump explained on Twitter. "They are wrong and should go back to school". Oh the things they teach in High School these days. No back to school fro the Fed Chair Jerome Powell this week. School is out as the Fed held rates and signaled patience with potential rate hikes later this year. Markets rallied, the Dow jumped over 400 points. Trump was pleased. The Fed is worried about growth in China and the rest of the world. No such fears for the US economy. The US added 304,000 jobs in January versus the 165,000 expected. The Fed may be back in the playground before the end of the year. That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Earnings Rise ...
Profits at Joules, the premium fashion brand increased by almost 15 per cent in the six months to late November. A reminder it's not all gloom and doom on the high street. Don't get too excited, the company warned it expected conditions in the retail sector to remain "tough for the foreseeable future". Tough but a rise in household incomes will help. In the three months to November, earnings increased by 3.4% compared to the same period last year. Inflation is falling, real incomes are rising. The unemployment rate held at 4%. There were 1.37 million unemployed with over 850,000 vacancies on offer. Recruitment difficulties are increasing as growth continues. The IMF expects growth of 1.5% in the UK in the current year compared to 1.3% in Germany and 1.5% in France. The small matter of Brexit is a huge overhang on the performance of the UK economy. Confusion in Westminster doesn't help. Borrowing increases ... Government borrowing in December was £3.0 billion compared to £2.7 billion prior year. Over the first nine months of the year, borrowing was £36 billion compared to £49 billion prior year. In the current year we now expect borrowing to hit £30 billion compared to £42 billion last year. A significant improvement on prior year but well ahead of the latest forecasts from the Office of Budget Responsibility. Total debt at the end of the year was £1.8 trillion. With 27% of gilts held overseas, dependence on the "Kindness of Strangers" continues. "With rotten bonds and inky blots sustained". Government revenues in the month increased by 4.3% as a result of higher VAT and NI contributions. Expenditure increased by 5.3% as the spending cap is eased on public sector pay and welfare payments. Gross interest payments in the month were £4.0 billion bringing the total for the year to date to £40 billion. The interest rate bill for the year as a whole will be £52 billion compared to £37.4 billion we plan to spend on defense. This week, Sony announced a relocation to Holland, Airbus warned the wings will fly in the event of a no deal solution. Dyson announced a relocation to Singapore. The UK is no place to build electric cars apparently. The Prime Minister suggested trade talks had gone well with New Zealand. There may even be hopes of an invisible link in the chain, with the CPTPP. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership the full name. Think of TPP deal without the US. It all sounded great until the Australian trade Minister pointed out the UK is a long way from the Pacific ... and it is ... IMF issues warning ... Christine Lagarde issued a warning to the world this week. Brexit and trade tariffs are a threat to growth. Who would have thought ... The IMF reduced forecasts for world growth this year to 3.5% from 3.7%. In the USA growth is expected to fall to 2.5% from 2.9% in 2018. In China, growth is expected to fall to 6.2% from 6.6% in 2018. . Should we really be so worried about China? For all of 2018, the Chinese economy grew 6.6 per cent, in line with a government target for growth of “about 6.5 per cent”. The growth rate was down from 6.8 per cent in 2017 and was the lowest growth rate since 1990. The Chinese economy slowed further in the fourth quarter, matching the lowest recorded reading, last seeen during the global financial crisis in 2009. The fourth quarter growth rate of 6.4 per cent, year on year, matched that of the first quarter of 2009, according to data released Monday by the National Bureau of Statistics. Retail sales grew 8.2 per cent December compared to a year earlier, up from 8.1 per cent in November. . China retail sales exceeded the total value of US sales for the first time ever. Industrial output increased by 6% as investment increased by a similar level. China is the second largest economy in the world and will surpass the US with the next five to ten years. The economy is morphing, manufacturing is on the move. Rumors this week, the high end iPhone will move out of China, to India. Just one of the many reasons why, the IMF expects the Indian economy to expand by 7.5% this year. The iPhone may be on the move but China hegemony remains the call ... The Writing's on the wall ... In the US, the shut down is over. Trump backed down in the face of Democrat solidarity and a crumbling Republican redoubt. The President agreed to end the shut down without any commitment to money for his great wall. Nancy Pelosi held her nerve as support for the President fell. Chuck Schumer had ensured Trump would take ownership of the shut down. The public held the President to account. The writing is on the wall for the President. In a sense it had been since the results of the mid terms. It was the second set back of the week for Trump. The Leader of Congress had suggested the President should not deliver the "State of The Union" address until the shut down was over, concerns over security paramount. When the President announced he would probably pop in any how, Pelosi formally withdrew the invitation. The President was stymied. The leader of the free world, was forced to accept he could only deliver his SOTU, once the shut down was over. By the end of the week, it was. Trump delivered a rambling, incoherent, "ode to the wall" packed with inaccuracies and falsehoods. For a President consumed with winning, this was a "stinging defeat" according to the New York Times. The White House team now have three weeks to manufacture a face saving deal with the Democrats. It will not be easy. Best to avoid the Press Room for now. Trump has instructed Sarah Huckabee Sanders "not to bother" with the press briefings ... there seems little point! In other news this week, the Mueller investigation continues. Roger Stone a long time Trump friend and adviser, has been indicted. Accused of lying, obstruction and witness tampering in the investigations of Russian involvement in the election of 2016. "I am innocent and will never rat on the President" claimed Stone. "This has nothing to do with the President" explained Sarah Sanders! Yep somehow we have heard this all before! That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Inflation falls ...
Inflation fell in December to 2.1% from 2.3% prior month. Service sector inflation held at 2.4%. The fall in the headline rate was largely attributed to goods inflation, down to 1.8%. A drop in petrol prices assisted the move, reflecting the continued weakness in oil prices. Oil prices Brent Crude averaged $57 dollars compared to $64 dollars last year. Manufacturing output prices slowed to 2.5% from 3.0% in November. Input costs slowed to 3.7% from 5.3% prior month. Softer petroleum prices helped but the weakness of Sterling $1.27 v $1.34 in December 2019, offset some of the gain. For the year as a whole, most analysts now expect inflation to average around 2.3%. Good news for households as earnings are expected to rise by around 3% maintaining a positive outlook for real earnings. Good news also for the Bank of England. There will be little pressure on the MPC to raise rates during the current year if current trends are maintained. Not so good for Sterling as the Fed is expected to raise rates by a further 50 basis points through the year. The interest rate differential will push the dollar higher and Sterling lower despite the rally this week. Retail Sales Slow ... Despite all the fears for retail sales over Christmas, the official figures from the ONS suggest sales values increased by almost 4% as volumes increased by 3.0%. Headlines from the High Street must be kept in perspective. Online sales increased by 14% accounting for 20% of all retail sales. Department stores, clothing and footwear are particularly vulnerable to on line penetration. The pressure on high street infrastructure will continue forcing store rationalization and footprint contraction. The pattern of sales is changing. Imagine a time within the next five years when 25% of transactions will be online. A huge extraction of activity on the high street and in shopping malls. Who can remember the idea of January Sales. New Year Discounts yielded to Boxing Day Breaks. Blue Star and Blue Tick Deals appeared in the run up to Christmas. Then came Black days on line. The significance of December no longer the dominant feature of the final quarter. Profit warnings prevail as a result of Brexit prevarication. Shock news from "Build a Bear" this week. Fluffy toy sales fell and workshop activity waned as "unresolved issues relating to Brexit negatively impacted consumer confidence". Those two year old toddlers so fickle in the face of EU uncertainty. Brexit Confusion Continues... The May deal vote was expected to fall at the first fence. The size of defeat was a shock to all. 432 MPs voted against the proposal. The Government was defeated by an unprecedented 230 votes. The Conservative party was in tatters with both sides of the Brexit debate voting against the deal. Decisive leadership was required to restore party unity. Jeremy Corbyn obliged calling a vote of no confidence in the government. Tory whips just flicked the feather duster to guarantee support, with the backing of the DUP of course. If the Labour leader has a strategy it remains well cloaked. The confidence vote provided a welcome delay for the Prime Minister in an attempt to find a solution to the current impasse. Welcome relief as rebel ranks rallied behind the weary front bench, Sterling rallied closing at $1.2894 by the end of the week. A postponement of the March deadline a possibility. A revised deal to include the Single Market and the Customs Union now a probability. It is clear a Conservative Party so divided, cannot deliver a solution to the quandary. A cross party agreement is the solution. If only Corbyn would abandon the illusion of a possible snap election and a move into Number Ten, then real progress could be made perhaps. Boris Johnson was in Stafford this week, delivering a potential leadership speech at the JCB factory. Digging a hole in front of a digger, the would be leader of the party denied any suggestion he had mentioned Turkey and the potential 77 million immigrants from the East prior to the Brexit vote. According to Henry Zeffman in the Times today, Johnson in 2016 had said, "I cannot imagine a situation in which 77 million of my fellow Turks can come here without any checks at all." Pressed by Channel 4 news, Johnson said "I didn't make any remarks about Turkey, mate". Yep fake news ... mate ... U.S. Shut Down Continues ... In the US, the partial Fed shut down continues. Pelosi denied access to the House for the President's State of the Union address. Trump retaliated by denying the leader of the house access to the official flight for an impending trip to Afghanistan. "If you would like to make your journey by flying commercial that would certainly be your prerogative" he wrote. Here's hoping the Taliban don't have access to the timetables from Washington to Kabul any time soon. Federal flights were later denied to all government staff. The First Lady was able to sneak out on an early flight to Florida. There have to be exceptions to every rule of course. Pelosi decided to cancel the trip to the war zone. The leader of the house is second in line to the presidency after all. Trump made the best of the shut down and the in house catering crisis this week. Paying out of his own pocket for a candlelit supper of junk food, the President entertained the Clemson Tigers, the 2018 college play off champions. Trump ordered 300 hamburgers quickly escalating to a claim of 1000 by the time the press arrived. Salads prepared by the First Lady had been an option. The "Melania Melange" could have become a Washington delicacy. The photo op no way as appealing as the shot of the leader of the free world in front of all that junk food. Plus he gets to eat the left overs. Markets rallied this week as China offered serious concessions to avoid a trade war. More pigs and soy beans will be added to the buy list. China promised to eliminate the trade deficit with Uncle Sam within five years. The US had a trade deficit with China of $323 billion dollars in 2018. That's a lot of soy and hog wash ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Growth in the final quarter of 2018 is expected to be around 1.4% based on the latest data from the ONS. 1.4% is now our forecast for the year as a whole with a similar level of output expected in 2019.
Service sector remains the driver of growth in the absence of investment and public sector expenditure expansion. And what of manufacturing? For the final quarter of the year we expect manufacturing output to fall by around 1% compared to heady growth of 2.5% in the first quarter of the year. Something is happening in the sector as domestic demand slows, Brexit fears rise and world trade activity slows. "Tariff Man" Trump continues to wreak havoc with threats of more trade tariffs. Grim news from the motor trade this week as Ford and Jaguar Land Rover both announced job cuts. The axe hovers over Bentley as losses continue and parent patience wears thin. UK Car sales fell by 7% in 2018. Declines were equally experienced in private and business registrations. Diesel sales fell by over 30%. The good news, petrol sales increased by 9% and alternative fuel sales were up by 21%. Diesel cars were the main problem for the sector. Customer confusion, government regulation and supply side issues the main challenge in a difficult year. Consumer confidence and Brexit are in the mix for problems in the sector but are not the whole story. JLR was hit by a slump in sales in China and the decline in diesel sales. A resolution of trade with Europe is critical for the car market and many other manufacturing sectors in the UK, as the SMMT has long argued. The Japanese Prime Minister Shinzo Abe was in Downing Street this week ... explaining the significance of European trade to Nissan, Toyota and others from the East ... Brexit Deal Nears ... Perhaps a Brexit deal nears? It could be next week. May's deal will be put to the vote on Tuesday. It is expected to fall at this first fence. The Prime Minister will have a second chance on Friday to put an amended deal to the House. The amended deal could include a commitment to match Labour Regulation and Conditions within the EU, appealing to dissident remainers in the Labour Party. A compromise on the Single Market and the Customs Union would appeal to Remainers in the Tory Party. The DUP and the Northern Ireland issue would no longer require a backstop. Forget the ERG and Tory Europhobes. Those ladies are not for turning. Job done the vote would pass, no need to postpone the Article 50 deadline at the end of March. No need either for a second referendum or a general election. A Bloomberg survey this week of eleven international banks attaches a 35% probability to a deal passing at the second time of asking and just a 15% chance of a no deal as the final outcome. The fortunes of Sterling are included in the poll survey. The upside, Sterling trades at $1.35 with a $1.15 downside as a result of no deal. The Sterling Friday close was $1.2852. $1.30 to $1.20 is the tighter band. $1.32 our call on a Friday deal resolution. The prospects for truly global Britain will be enhanced by remaining within the single market and the customs union. Truly global Britain, the invisible chain around the world, will experience a trade deficit in goods of around £140 billion or 7% of GDP in 2018 and 2019. The deficit will be largely offset by a surplus in invisible goods. The shortage of capacity in the manufacturing sector will be exacerbated unless the trade deal with Europe is achieved. Germany remains the exemplar of what be achieved in export growth within the so called restrictive EU trade tariff regime. Germany exports four times as much as the UK to the BRIC and North American markets. U.S. Shut Down Continues ... In the US, the partial Fed shut down continues as Trump obstinacy is maintained. Money for the wall or no money for 800,000 Fed workers the trade off. Pelosi and Schumer have boxed in the President. Trump owns the shut down. The GOP will feel more uncomfortable as the impasse moves into a fourth week with no signs of a walk back from the White House. Fed Chair Jerome Powell assured markets there will be no recession in the USA this year. Steve Mnuchin US Secretary of the Treasury has already assured investors there is no liquidity crisis in the Banking Sector. Markets have moved from the December lows, no doubt taking the President's advice to "Calm down and enjoy the ride". No recession, no banking crisis. Just an emerging balance of payments and debt crisis to emerge as the economy enjoys continued growth into 2019. Uncle Sam is in danger of losing the AAA rating for borrowing as Fitch explained this month. A continued shut down without an expansion of the debt ceiling will create problems for the US economy later in the year. James McCormack, Fitch's head of Global sovereign Ratings at Fitch, warned debt levels are moving higher and the debt service costs are increasing. The Dollar closed lower against the Euro and the Pound. US Ten Year Bond Yields closed up to 2.70. China is set to become the largest economy in the world within ten years. The Renminbi is set to become a reserve currency within the same time frame. Uncle Sam may need a wall to keep people in as the reality of the Trump economics unwinds in the years ahead ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John |
The Saturday EconomistAuthorJohn Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy. Archives
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