I met with the chancellor this week

Economics news – I met with the Chancellor of the Exchequer this week!

I met with the Chancellor of the Exchequer on Friday! Yep it has been a great week for the Saturday Economist. Breakfast with Sir Mervyn King, Tuesday, Thursday, the quarterly pro.manchester economics presentation and Friday a meeting with the Chancellor of the Exchequer, George Osborne. It was a brief encounter. The Chancellor was delivering the Annual Brian Redhead lecture at Media City. Thanks to Peter Salmon and the BBC team, I was a guest, one of few suits, in the audience of media peeps. Following his lecture, George Osborne was interviewed by Steph McGovern, largely about media and with little reference to economics. Afterwards I did get to meet the Chancellor and talk about the economy briefly.

It has actually been a good week for the Chancellor. The second estimate of GDP confirmed growth in the economy at 0.6% in the first quarter. Inflation (CPI) fell in April to 2.4% from 2.8% in March, catching most analysts by surprise. Manufacturing prices both input and output fell back as a result of softening oil prices. The borrowing figures, were revised to record a slight fall in the financial year compared to previous year and the underlying figures for April suggest the deficit will fall as expected this year. The FTSE flirted with the 6,850 level before falling back in exhaustion to close the week at 6,654. The IMF pulled punches, no overt criticism of policy, suggesting just a modest tweak to the austerity plan with a £10 billion infrastructure spend to offset the austerity cuts to come.  All good news.  

By the end of the year, the Chancellor may be running the most successful economy in Europe excluding Latvia, Lithuania and Luxembourg. What a transformation. Hang on a minute, can it really be so good? The unemployment figures last week were a little disappointing and the retail sales figures for April, with a rise of just 0.4% year on year were pretty dire. Real earnings are a drag on growth.

It’s a fragile recovery, the IMF suggests we are a long way from a strong and sustainable recovery and the prospects for growth remain weak. We are slightly more upbeat and so for that matter is the Governor. Weak growth last year was undermined by slow output from the oil sector and weakness in construction, argues Sir Mervyn King. Prospects for service sector growth are pretty good this year, quod erat faciendum.

In our quarterly economics forecast we still expect growth over 1% this year. There are 75 slides in the economics presentation, available on line as a free download from the NEW Saturday Economist web site. One hundred delegates signed up for the presentation this week and 1000 visited the site in only the second week online. Check out the New Saturday Economist web site, probably the best economics web site in the UK.

What happened to sterling?
Sterling slipped to 1.5123 from 1.5168 against the dollar and fell against the euro at 1.1691 from 1.1811. What is it about the Euro? The Euro dollar closed at 1.2932, against the pound it remains significantly over valued but may yet move higher.

Oil Price Brent Crude closed at $102.64 from $104.64. In May last year the average prices was around $108 compared to almost $120 in April. Inflation will remain subdued but without the same dramatic falls last month.   

Markets, it was clip the suckers week. The Dow closed at 15,303 from 15,354 trading intra week over 15,500. The FTSE closed at 6,654 from 6,723, wiping out soft money over 6,850. Time to sell in May and go away we said last week. The easy calls have been made - market makers pocket loose change for the long week-end, using Bernanke's QE statement as the excuse, as they mug the punters!

UK Ten year gilt yields held at 1.91 but US gilt yields closed up 2.01 from 1.95. As for gold, gold closed up at $1,392 from $1,361. Check out the gold price on The Saturday Economist web site.

Confused? Check out The Saturday Economist web site, probably the best economics site in the UK.

That’s all for this week, don’t miss The Sunday Times and Croissants out tomorrow. The Saturday Economist.com is mobile friendly, no need for a special app any more!

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John

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. It's just for fun, what's not to like! Dr John Ashcroft is The Saturday Economist.

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