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!
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.