Retail sales surged in June according to the latest ONS data. The volume of retail sales increased to 2.9% in the month. Sales value growth increased by almost 6%. In the first three months of the year, sales values increased by 5.7%, so much for the real income squeeze. The gloves are off and the wallets are open. Spending on clothing, textiles and footwear increased by over 6%.
On line sales are booming. Internet sales increased by 15.9%, accounting for over 16% of all retail sales in the month. The data follows information on week pay growth, suggesting real incomes are under pressure. For the moment, the squeeze is having little effect on retail sales. The performance of Sterling is boosting tourist traffic and perhaps the high street spend.
Inflation figures were a surprise for some this week. The headline rate CPI fell to 2.6% in June following an increase of 2.9% in May. Oil and the weakness of Sterling explain the surge in prices. Soft oil and a Sterling recovery explain the inflation mitigation. Goods inflation was up by 2.6%. Producer prices eased back to 3.3% Input costs fell below 10%. Inflation may have peaked in the first half of the year. The underlying service sector inflation at 2.7% in June, is a clear indication inflation will remain above target.
The ECB made the call this week, to end QE and to call an end to the era of low rates in Europe. The MPC will herald the headline inflation drop as a reason to avoid a rise in base rates. Strong retail sales and underlying inflation rates suggest it is time to make the move. Unless pay rates rise, the MPC will be loathe to act ...
Borrowing disappoints ...
Government borrowing increased by almost £2 billion in the first three months of the year according to the official figures released this week. Borrowing in the month was £6.9 billion up from £4.8 billion prior year and was £22 billion in the year to date.
Public sector net debt (excluding public sector banks) was £1,753.5 billion at the end of June 2017, equivalent to 87.4% of gross domestic product, an increase of £128.5 billion
on June 2016.
Total revenues increased by 4.7% in the first three months of the year. VAT revenues up by just 2%. The VAT performance is disappointing given the growth in retail sales values. Government spending was up by 4.7%. The age of austerity may well be over. The evident problem for the Chancellor is in the surging level of debt and the cost of debt service.
Interest costs were up by £3.4 billion in the quarter, up to £16.7 billion from £13.3 billion prior year. The Bank of England rebate held back the full impact from net spending. So what prospects for the rest of the year? The OBR is forecasting an increase in the overall level of borrowing to £52 billion in this financial year up from £46.2 billion in the year to March 2017. The Chancellor has little room for largesse in the Autumn budget ...
That's all for this week. Have a great week-end ... Don't Miss the Economics Conference on the 13th October. Our theme is the Economics of Greater Manchester. We will be talking about the Inclusive Growth Challenge, Balancing the Books and the Sectors Driving Growth in the City Region! Another Great Conference in the pro-manchester series ... Book Now Don't Miss Out ...
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