"The High Priest of Project Fear" was Jacob Rees-Mogg's depiction of the Governor of the Bank of England this week. The Governor had been in a Cabinet Meeting suggesting house prices would fall by over 30% in the event of a hard Brexit next year, allegedly.
The Arch Brexiteer was incensed. "The Governor of the Bank of England should influence events by the modest movement of eyebrows, rather than imitating a screaming banshee" he said.
Unfortunately for the Mogg, long gone are the days of bushy eyebrows and the subtle draft of disdain as eyebrows are raised in modest reproach. The Governor has a job to plan for the worst and not hope for the best, as he explained in a Daily Mail article this week..
The Bank is not forecasting a fall in house prices as a result of a hard Brexit. The house price fall, along with a surge in unemployment and rising rates is one of several "stress tests" for the banking system in the event of a financial crisis. The extreme case is "Candles, Caves and Cans". One in which we are all "living in caves, lit by candles, eating out of cans". But then who would need a banking system and a central bank anyway.
The Governor did explain there could be a £16 billion bounce to the economy in the event of a "Chequers" deal. Consumer confidence would receive a boost. Investment plans would be revised. A collapse in Sterling would be avoided. The sky would not fall down. Theresa May would be triumphant.
The Governor knew what he was doing. Eighty MPs including Boris Johnson, David Davis and the Mogg have already said they would reject the Chequers deal. In quantifying the £16 billion boost, the Governor demonstrated a wry sense of humor.
The "High Priest of Project Fear" had morphed into "The High Priest of Fun" ...
The UK is hiring ... and paying more ...
Good news on the economy this week, the unemployment rate held at 4% in July. The number unemployed was 1.36 million, Vacancies increased to 833,000 and pay increased by 3.1%. There was a big jump in public sector pay, matching the private sector increase.
One months data can be subject to revision. The three months average, increased by a more modest 2.6%. We have long expected an increase in earnings to match the fall in unemployment, rising vacancies and recruitment difficulties. Is this the turning point? Perhaps.
In other news, the ONS released the monthly GDP tracker data for July. The rate of growth increased to 1.6% year on year, following 1.3% growth in the second quarter. Services grew particularly strongly, with retail sales performing well. Activity was boosted by warm weather and the World Cup. The construction sector also bounced back after a weak start to the year. The legal profession performed particularly well.
Manufacturing output continued to disappoint. According to ONS data, manufacturing output increased by just 1.1% in the month. [We expect manufacturing growth of just 1.5% this year, following growth of 2.5% last year.]
It could get worse. The boss of Jaguar Land Rover, Ralf Speth, warned this week, of thousands of job losses in the UK in the event of a no deal Brexit. In June, JLR said it would shift production of its Land Rover Discovery to a new plant in Slovakia. The statement follows warnings from BMW, Nissan and and other large manufacturers including Airbus.
The SMMT reported, car sales were down by 4% in the year to August compared to prior year. Diesel sales were down by almost 30%. Consumers are confused. We expect registrations to fall by 4.5% for the year as a whole largely as a result of the diesel shock.
So what of interest rates? The Bank of England MPC voted unanimously to keep rates on hold this week despite the pick up on growth and earnings. The Fed is expected to raise rates again this year. A further rate rise on the UK seems possible this year, if current trends continue on earnings and inflation.
Sterling closed up at $1.3068 against the Dollar on Friday and €1.1231 against the Euro. Ten year gilt rates closed up at 1.54 from 1.45. In the USA ten year bond yields closed at 3.0%. Uncle Sam has lift off from Planet ZIRP. A further weakness in Bond Prices would push U.S. rates back to normality, pegged at 4.5% ...
Ignoring the Tweets ...
West Wing aides are perfecting a Trump survival skill: Ignoring the tweets according to #Politico.
The president peddled a conspiracy theory about the death toll from Hurricane Maria, White House officials went on as though he'd said nothing at all.
Trump’s outburst, in which he peddled a false conspiracy theory that “Democrats” inflated the official death toll from Hurricane Maria to smear his image, was met largely with silence from his White House advisers. There was little effort to mount a major defense of the statement. Tweets will be tweets and then move on without comment the current policy.
"When Trump visited the island territory last October," he tweeted "OFFICIALS told him in a briefing 16 PEOPLE had died from Maria" "then like magic 3000 people had been killed." Trump often reverts to the third person in his tweets. It's like an out of body (or mind) experience.
"3000 people did not die in the two hurricanes that hit Puerto Rico. When I left the Island, they had anywhere from 6 to 18 deaths. As time went by it did not go up by much. Then, a long time later, they started to report really large numbers, like 3000..." Trump tweeted Thursday morning...
"This was done by the Democrats in order to make me look as bad as possible when I was successfully raising Billions of Dollars to help rebuild Puerto Rico. If a person died for any reason, like old age, just add them onto the list. Bad politics".
Gradually markets too are learning to ignore the tweets. Markets rallied on news of potential trade talks with China. Then slumped as reports emerged Trump wants tariffs on $200 billion of Chinese goods. News of instructions to aide to implement the tariffs did not affect markets this week. The Dow, S&P and NASDAQ closed higher in the week.
Monday Morning Markets ...
Find out more in our Monday Morning Markets. The update is released every Monday Morning at around 8:00am. We look at key stock markets, bond markets, interest rates and currencies every week.
Last week our eToro "Empires of the Cloud" returned to profit with a strong performance from Apple and Microsoft. Our eToro nine index tracker fund was up by 1.3% as fears of trade wars and Brexit faded from sentiment.
That's all for this week, we will be back next week, with more economics, updates and market analysis.
Have a great weekend,
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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