Brigitte Bardot, the "impossible dream of married men", will be 80 years of age tomorrow. Now a great grandmother, in a birthday interview for Paris Match, Ms Bardot claimed “I have loved a lot, passionately madly and not at all. Yet, I only keep one man in mind : the next one”.

I feel much the same way about economic forecasts. I love a lot, passionately and madly,  some not at all. I only keep one forecast in mind - the next one. Especially the next forecasts resulting from the GDP revisions out next Tuesday. The inclusion of drug dealing and prostitution for the first time, will no doubt, boost output and productivity in the UK economy. UK growth forecasts for the year will be revised as a result. The productivity dilemma resolved, understanding economic agents, burn a spliff, lie back and think of England as they contribute to economic growth.

Forecast Revisions …
Good news from Spain this week, as forecasts of growth have been revised up. The Finance Minister, Luis de Guindos has suggested growth this year will be 1.3% and 2% next. Still some way to go to full employment, the government now expects the unemployment rate to be 22.9% in 2015, down from prior forecasts of 23.3%.

In the USA, growth in the second quarter has also been revised up! The annualised rate of growth revised higher to 4.6% from the previous 4.2%. The underlying growth rate (year on year) revised to 2.6% in the quarter. We now expect US growth of 2.5% for the year as a whole, following the slow start in the first quarter.

The Manchester Index™,
In the UK, the economy is on track for growth of 3.1% this year slowing to 2.8% next according to the latest data from GM Chamber of Commerce Quarterly Economic Survey and the influential Manchester Index™.

The Manchester Index™ index moderated from 33.6 in Q2 to 32.0 in the third quarter largely as a result of the change in outlook for exports. The index remains above the pre recession average for the period 2005 - 2007.

The outlook for home orders and deliveries improved slightly in both the service sector and the manufacturing sector. Exports, on the other demonstrated a significant fall in deliveries in both manufacturing and services. Service sector orders fell but the drop in export manufacturing orders was particularly marked. Overall confidence in turnover and profits was maintained and the prospects for employment and investment was particularly marked.

Borrowing figures …
Government borrowing figures were released this week. Public sector net borrowing was £11.6 billion in August, an increase of £0.7 billion compared with August 2013. For the year to date, total borrowing was £45.4 billion, an increase of £2.6 billion compared with the same period in 2013/14. Receipts in the month were boosted by Stamp duty up 24% and VAT receipts with a recovery in income tax payments, up by 2.4%.

The cautionary note, expenditure £54 billion increased by 3.3%. The government is off track to meet the deficit targets this year. The good news, borrowing was revised down for 2013/14 to £99.3 billion. The reduction to £95 billion this year, less of a challenge as a result but there is still much to do with seven months to go before the end of the financial year if the targets are to be hit.

So what of base rates …
The Governor delivered a speech in Wales this week. “With many of the conditions for the economy to normalise now met, the point at which interest rates also begin to normalise is getting closer. In recent months the judgement about precisely when to raise Bank Rate has become more balanced. While there is always uncertainty about the future, you can expect interest rates to begin to increase. We have no pre-set course, however; the timing will depend on the data.”

So what does this mean for UK rates? As we said last week, weak growth in Europe, monetary accommodation in the US, low inflation and earnings data in the UK, will push the increase in UK base rates into 2015. Despite the schism on the committee, the MPC will be reluctant to move ahead of the Fed. The timing will depend on the data. The inflation and pay data says “don’t move yet but February is the best bet”.

So what happened to sterling this week?
Sterling slipped against the dollar to $1.624 from $1.630 but up against the Euro at 1.280 from 1.270. The Euro closed against the dollar at 1.269 (1.270).

Oil Price Brent Crude closed down at $96.83 from $98.08. The average price in September last year was $111.60.

Markets, moved down. The Dow closed at 17,017 from 17,291 and the FTSE closed down at 6,649 from 6,837.

UK Ten year gilt yields move up to 2.46 from 2.55 and US Treasury yields closed at 2.53 from 2.62. Gold moved sideways at $1,221 from $1,218.

That’s all for this week. Join the mailing list for The Saturday Economist or forward to a friend.

John
© 2014 The Saturday Economist by John Ashcroft and Company : Economics, Corporate Strategy and Social Media ... Experience worth sharing.

The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of investment advice.

The prospect of a UK base rate rise before the end of the year receded this week with the release of latest data on inflation and earnings …

Retail Prices …
Retail price inflation CPI basis slowed to 1.5% in August from 1.6% prior month. Falls in the prices of motor fuels and food provided the largest downward contributions to the change in the rate. Markets expect CPI inflation to average 1.7% over the final quarter of the year, significantly below the MPC benchmark 2% target. Don’t worry about deflation too much, service sector inflation actually increased to a rate 2.7%, as goods inflation fell to 0.6%.

Manufacturing Prices …
Manufacturing output prices actually fell in August, down by -0.3% compared to a fall of -0.1% in July. Input costs, price of materials and fuels bought by UK manufacturers, fell -7.2% in the year to August, compared with a fall of -7.5% in the year to July.

Crude oil costs were down by 14% as price of energy and import costs generally benefited from the weakness of world commodity and trade prices. The appreciation of Sterling helped, up by 8% against the dollar in the month. Home food material costs were down by -10%. Evidence that weak food prices at retail level are not really attributable to supermarket food wars after all.

For the moment, inflation, or lack of it, is always and everywhere an international phenomenon. World trade prices are weak. Oil price Brent Crude is trading below $100 per barrel compared to $112 last year. Sterling closed at $1.63 this week up by just 3% compared to September last year. A warning perhaps, the currency contribution may be eroding and the dramatic fall in manufacturing costs may soon be reversed.

Unemployment data …
The number of people unemployed, claimant count basis fell below 1 million in August, the actual figure was 966,500 and a rate of 2.9%. Over the last six months over 200,000 have left the register. At this rate, job centres will be closing by the end of 2017, there will be no one looking for work.

Despite the surging jobs market, pay data remains remarkably weak. Average earnings increased by 0.7% in July. Surprising given the rate of jobs growth. Some evidence of compression is more evident in manufacturing pay, up almost 2% and construction, up by 4%.

Retail Sales ...
Retail sales rallied in August as volumes increased by 3.9% year on year and values increased by 2.7%. Online sales volumes were up by 8.3% accounting for 11% of all retail transactions. Households are spending and will continue to do so. The August ©GfK Consumer Confidence Barometer confirms households are more optimistic, feel better off and believe it is a good time to spend.

So what of base rates …?
Janet Yellen, head of the Fed, gave additional guidance on the direction of US rates this week. “The Committee currently anticipates that economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run”. “A highly accommodative stance remains appropriate”. There was no real change in the police stance. Markets rallied and the Dow closed above 17,000. Analysts do not expect a rate rise in the USA before June next year.

So what does this mean for UK rates? Weak growth in Europe, monetary accommodation in the US, low inflation and earnings data in the UK, will push the increase in UK base rates into 2015. Despite the schism on the committee, the MPC will be reluctant to move ahead of the Fed. No escape from Planet ZIRP just yet, we may regret the delayed take off in the years ahead.

So what happened to sterling this week?
Sterling rallied against the dollar to $1.630 from $1.626 and well up against the Euro at 1.270 from 1.254. The Euro was down against the dollar at 1.270 (1.297).

Oil Price Brent Crude closed down at $98.08 from $97.62. The average price in September last year was $111.60.

Markets, move up. The Dow closed at 17,291 from 16,978 and the FTSE closed down at 6,837 from 6,806.

UK Ten year gilt yields moved 2.55 from 2.49 and US Treasury yields closed at 2.62 from 2.60. Gold  drifted lower at $1,218 from $1,227.

That’s all for this week. Join the mailing list for The Saturday Economist or forward to a friend.

John
© 2014 The Saturday Economist by John Ashcroft and Company. Economics, Strategy and Social Media ... Experience worth sharing.

Disclaimer
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of investment advice.

If you do not wish to receive any further Saturday Economist updates, please unsubscribe using the buttons below or drop me an email at [email protected]. If you enjoy the content, why not forward to a colleague or friend. Or they can sign up here

USA ... When will US rates rise? According to the latest survey in the Wall Street Journal, most economists expect the Fed to raise rates in June next year. 40% expect rates to rise in the second quarter and almost half expect the rise to be delayed until the second half of the year.

Positive about the prospects for growth in the US, economists believe concerns about Europe and challenges in the Ukraine suggest the Fed will be anxious to hold the rate rise for as long as possible and well into the year ahead.

Mark Carney in Liverpool …
The Governor was in Liverpool this week speaking to the TUC Annual Congress. Reassuring union members he and 3,600 staff in the Bank of England were paid a living wage, the governor went on to explain the “judgement about precisely when to raise Bank Rate has become more balanced”. “With no pre set course, the timing would depend on the data.”

This week, the data suggests there will be no pressure to increase rates anytime soon and probably not before the end of the year.

Oil Price …
Fears of inflation abate, as the oil price fell below the $100 dollar mark. Despite turmoil in Iraq and Syria, Oil Price Brent Crude closed at $97.62. The average price in September last year was $112. UK manufacturing prices and headline inflation rates will soften as a result. For the moment, the Saudi swing producers are relaxed. The seasonal low will impact and prices will take the hit. Restoration to the $100 - $110 band will follow in the Autumn, demand and supply will adjust to ensure this is the case.

Manufacturing …
UK Manufacturing output increased by just 2.2% in July after growth of 3.5% in the first half of the year. Output of capital goods and consumer goods was surprisingly week in the month. We have downgraded our forecasts for the third quarter and the year as a whole (3.4%) as a result.

Construction output ...
UK Construction output growth slowed to 2.6% in July after growth of 6% in the first half of the year. Strong growth in new housing (both public and private) up by 27% and in private industrial (up by 20%) was offset by weakness in infrastructure and related public sector projects. For the year as a whole we expect growth of 4.6% slightly down on the June forecast of 5.1%.  

UK Trade Figures …
The trade deficit (goods) increased to £10.2 billion in July offset by a £6.8 surplus in services. Our forecasts for the year as whole - unchanged as a result. We expect the deficit (trade in goods) to be £30.8 billion in the quarter and £112.5 billion for the year as a whole.

Is this a threat to recovery? Not really. The trade in services surplus will reduce the combined deficit in the year, to around £30 billion. Less than 2% of GDP, the deficit is easily funded. No pressure on policy makers to increase rates, assuming overseas dividends recover to finance the shortfall.

Growth in the UK …
Despite the soft figures in manufacturing and construction in July, our forecast for growth in the UK in the Q3 and for the year as a whole remains unchanged around 3.1%

So what of base rates …
Last week, base rates were held at 50 basis points. The chances of a rate rise before the end of the year are receding. Next week’s inflation and retail figures will be soft but the labour stats will suggest further tightening in the claimant count and vacancy rates. There will be nothing in next week’s data to precipitate a rate rise this year.

So what happened to sterling this week?
Sterling fell against the dollar to $1.626 from $1.630 and down against the Euro at 1.254 from 1.259. The Euro was up against the dollar at 1.297 (1.295).

Oil Price Brent Crude closed down at $97.62 from 100.98. The average price in September last year was $111.60.

Markets, move down slightly. The Dow closed down at 16,978 from 17,103 and the FTSE closed down at 6,806 from 6,855.

UK Ten year gilt yields move up to 2.55 from 2.49 and US Treasury yields closed at 2.60 from 2.44. Gold was further tarnished at $1,227 from $1,265.

That’s all for this week. Join the mailing list for The Saturday Economist or forward to a friend.

John
© 2014 The Saturday Economist by John Ashcroft and Company. Economics, Strategy and Social Media ... Experience worth sharing.

Disclaimer
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of investment advice.

If you do not wish to receive any further Saturday Economist updates, please unsubscribe using the buttons below or drop me an email at [email protected]. If you enjoy the content, why not forward to a colleague or friend. Or they can sign up here

No surprise this week as MPC votes to hold rates …
It’s that time of month again …The Bank of England’s Monetary Policy Committee voted to maintain Bank Rate at 0.5%. The Committee also voted to maintain the stock of purchased assets at £375 billion. The minutes of the meeting will be published on the 17 September. Can’t wait!

The hawks views may have been subdued by the latest data on retail sales and earnings data but the economics news this week remains bullish about growth this year.

Car Sales …
Car sales in August were up by 9% in the month and just over 10% in the year to date. The UK is on track to sell 2.45 million cars this year. That’s higher than the pre crash levels recorded in 2007. Commercial vehicle sales were up almost 12% in August, increasing by 13% for the year to date.

The car market remains a powerful indicator of consumer confidence and spending trends. August, with registrations of just 72,000, is no longer a big month for sales. September is the one to watch with over 400,000 new car sales recorded last year, 425,000 a hurdle number!

UK Survey Data …
The Markit/CIPS UK PMI® surveys for August were released this week. Chris Williamson, Chief Economist at Markit, claimed “An acceleration of growth in the services sector and an on-going construction boom offset a weakened performance in manufacturing in August. The three PMI surveys indicate that the economy grew at the fastest rate since last November, providing further ammunition for policymakers arguing for higher interest rates.”

In the service sector, activity growth was the strongest for ten months. The headline Business Activity Index recorded 60.5 up from 59.1 in July, representing the sharpest monthly improvement in activity since October 2013.

In the construction sector, output appears to have risen at the fastest pace for seven months. The key index recorded a level of 64.0 in the month, up from 62.4 in July. Residential construction posted the fastest growth in activity.

News from the manufacturing sector disappointed slightly. The Manufacturing PMI index posted 52.5 in August, down from 54.8 in July. Albeit a 14 month low, the index is still in growth (above 50) territory. Domestic sales dominate, export demand is strong in North America, the Middle East and China but obvious problems in European order books persist.

So what of the rest of the world?

US jobs disappoint but Fed still on track to tighten …
The US labour market added 142,000 new jobs in August, significantly below consensus expectations and well below the 225,000 average over the prior six months. The unemployment rate fell to 6.1%. Positive news on car sales and manufacturing output also hit the headlines …

“The data doesn’t say the economy is slowing down but it does not suggest it is accelerating much either” according to Steven Blitz chief economist at ITG Investment Research. Nor we would add, is there much in the data to suggest the Fed will stray from the path of gently monetary tightening in the first half of 2015.

In Europe …
The ECB adopted further measures in an attempt to stimulate the slow recovery and low inflation in the Eurozone. Growth in Q2 increased by 0.7% compared with Q2 last year with some evidence of a slow down in Germany. Inflation fell to 0.3% and unemployment remained stubbornly high at 11.5%.

The ECB lowered policy rates by 10 basis points, the refinancing rate moved down to 0.05%, the marginal lending facility fell to 0.3% and the deposit rate was pushed further into negative territory, dropping to -0.2%. No escape from Planet ZIRP in prospect!

Despite the concerns about deflation, GDP is forecast to increase by 0.9% in 2014 and 1.6% in 2015. Low prices are an international phenomenon, not confined to Europe. Negative rates and QE are unlikely to provide the solution to low commodity prices.

A slow for recovery for Europe is in prospect. Marooned on Planet ZIRP, digging up the runway will not improve the timetable for takeoff and escape. There is an old Iberian imprecation, “May the builders be in your home”. Far worse - the curse “May the academics be in your central bank”.

So what of base rates …
In the UK base rates were held at 50 basis points with no additions to the asset purchase programme. The chances of a rate rise before the end of the year are receding. Hot money is moving to February for the first rate hike but if the bad news from Europe continues, the hike may be post hustings after all. Is this at odds with the latest data? Of course. Demand conditions are strong, the labour market is tightening, recruitment challenges are increasing and skill shortages are ubiquitous. Pay and earnings remain subdued and international energy and commodity prices remain low. For the moment the inflation target remains within reach, easing the grip of the hawks on monetary policy.

So what happened to sterling this week?
Sterling fell against the dollar to $1.630 from $1.658 and down against the Euro at 1.259 from 1.261. The Euro was down against the dollar at 1.295 (1.314).

Oil Price Brent Crude closed down at $100.98 from 102.19. The average price in September last year was $111.60.

Markets, move up slightly. The Dow closed up at 17,103 from 17,084 and the FTSE closed up at 6,855 from 6,819.

UK Ten year gilt yields move up to 2.49 from 2.37 and US Treasury yields closed at 2.44 from 2.33. Gold was slightly tarnished at $1,265 from $1,286.

That’s all for this week but we would like to introduce the Bracken Bower Prize to our readers!

John
Introducing the Bracken Bower Prize
The Financial Times and McKinsey & Company, organisers of the Business Book of the Year Award, want to encourage young authors to tackle emerging business themes. They hope to unearth new talent and encourage writers to research ideas that could fill future business books of the year. A prize of £15,000 will be given for the best book proposal.
 
The Bracken Bower Prize is named after Brendan Bracken who was chairman of the FT from 1945 to 1958 and Marvin Bower, managing director of McKinsey from 1950 to 1967, who were instrumental in laying the foundations for the present day success of the two institutions. This prize honours their legacy but also opens a new chapter by encouraging young writers and researchers to identify and analyse the business trends of the future.
 
The inaugural prize will be awarded to the best proposal for a book about the challenges and opportunities of growth. The main theme of the proposed work should be forward-looking. In the spirit of the Business Book of the Year, the proposed book should aim to provide a compelling and enjoyable insight into future trends in business, economics, finance or management. The judges will favour authors who write with knowledge, creativity, originality and style and whose proposed books promise to break new ground, or examine pressing business challenges in original ways.
             
Only writers who are under 35 on November 11 2014 (the day the prize will be awarded) are eligible. They can be a published author, but the proposal itself must be original and must not have been previously submitted to a publisher.

The proposal should be no longer than 5,000 words – an essay or an article that conveys the argument, scope and style of the proposed book – and must include a description of how the finished work would be structured, for example, a list of chapter headings and a short bullet-point description of each chapter. In addition entrants should submit a biography, emphasising why they are qualified to write a book on this topic. The best proposals will be published on FT.com.

Full rules for The Bracken Bower prize are available here or here
http://membership.ft.com/PR/brackenbower/

© 2014 The Saturday Economist by John Ashcroft and Company : Economics, Corporate Strategy and Social Media ... Experience worth sharing.

The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of investment advice.