 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 ...
0 Comments
 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 |
The Saturday EconomistAuthorJohn Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy. Archives
August 2024
Categories
All
|
| The Saturday Economist |
RSS Feed
