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!
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
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 presentation should not be construed as the giving of investment advice.