"Poor Retail Sales Raise Fears of a Brexit Slump" the headline in The Times today. Tom Knowles, Economics Correspondent, suggests the slowdown in the British economy has begun, after the sharpest fall in retail sales in seven years. Really?
Sure enough, the volume of goods sold in March increased by just 1.7% in the month and by just 2% in the first quarter of the year. This time last year sales volumes were racing along at over 4%. Inflation was muted. Spending in money terms, increased by just 1.6%. CPI inflation averaged 0.4% and goods inflation was negative. Should we really be too concerned by the headline drop in volumes? Perhaps not.
An early Easter in March last year boosted sales volumes in the month and in the quarter comparison. Fuel sales were down by 4.5% in March this year, Easter travel plans delayed. Consumer spending in value terms increased by over 5% in March and 4.8% in the first three months of the year. Consumers are spending more to buy less in terms of volumes. Retail Price inflation in the March basket was 3.3% largely driven by an increase in petrol prices (up 16%). Excluding petrol, retail prices increased by 2.6%. Clothing and footwear sales increased by 6%, online sales increased by 20% accounting for 16% of all retail sales. No household income squeeze apparent in the retail sales figures, forget fears of a slowdown for now ...
In other news this week ...
The IMF upgraded forecasts for the world economy to 3.5% in 2017 and 3.6% in 2018. Forecasts for UK growth were upgraded to 2% from earlier estimates of 1.1% and 1.5%. Despite fears of rising inflation and household income squeeze, strong growth is set to continue according to the IMF head Christine Lagarde.
Rising inflation and stronger growth are beginning to convince MPC member Michael Saunders of the need to raise rates much sooner than expected. In a speech to the Federation of Small Business this week, Saunders suggested growth and inflation in 2017 could be higher than the Bank of England forecast in February. He also suggested rates at 0.25% were already "accommodative" and would need to rise. Kristin Forbes has already broken ranks and called for a rate hike to 0.5%, reversing the August move last year. The hawks are gathering on the MPC.
In "other news" the Prime Minister called a snap election in June. Capitalising on a twenty point lead in the polls and the prospect of a near 100 seat majority in the house, the move is designed to out-manoeuvre Labour and back bench dissidents in the Tory party. Any EU deal will be a result of tough negotiations with the EU group and tougher negotiations with the Conservative parliamentary group. Better a bigger majority to convince doubters to accept the outcome of any deal. A mandate for Brexit? Not really. 48% of voters voted remain and one third of Conservative voters wanted to stay. Will tactical voting boost the Lib Dem vote? Will the move lead to the Scotland's separation and the unification of Ireland? Another hustings cliff hanger in the short months ahead. The Tories could even lose the election warns Tory strategist Lynton Crosby ...
Four legs good, two legs bad ... or is it two legs ...
The US announced this week, the EU would be bumped ahead of the U.K in any trade deal. Despite the preference for bilateral deals, President Trump has been forced to accept a deal with Germany could not be achieved without an overall agreement with the trade bloc. Despite asking Merkel many times for a one on one deal, the German Chancellor stayed firm to the cause. Perhaps this explains the sulky reluctance to shake hands before the camera during the White House visit. TTIP is back on the agenda along with a love for the EU, NATO, the IMF and the World Bank.
Like some Orwellian conversion, the four legs good, two legs bad mantra is yielding to the reality of life in Animal Farm and the White House Zoo. How do you influence President Trump on policy? Try to be the last man (or woman) standing on two legs before a policy statement is made.
The Italian Prime Minister Paolo Gentiloni received the treatment this week. Welcomed to the White House, Trump reads a list of national characteristics like the anchor on a reality show introducing a hapless contestant. "The timeless contribution of Italy to civilization and human progress, stretching all the way back to ancient Rome, your nation has been a beacon of artistic and scientific achievement, from Venice to Florence, from Verdi to Pavarotti (a friend of mine ... a great friend of mine), history and culture have only grown stronger because we are great friends and allies...
Cynical to point out Pavarotti has been dead for ten years. Strong allies" the Italian Prime Minister asked Trump to step up his commitment to Libya. A hasty and undiplomatic response followed. Would the US take a greater rôle in Libya? Trump replied I have enough rôles. Pretending to be President probably the most demanding but Syria, Iran, Korea, Japan, Russia ... it's tough being President of the United States.
Trump has a flair for offending friend and foe alike. Following conversations with President Xi, Trump had learned Korea was once part of China! OK, you would have to go back as far as the Ming Dynasty for confirmation. Korea had also been part of Japan at the turn of the century. The South Korean government was alarmed. A possible Beijing annexation of the North Korea back in the agenda?
Some relief the Easter Pyongyang crisis had been averted. To discover the U.S armada was sailing in the wrong direction at the time of the White House call to action, still a cause for some concern. The picture of the Easter bunny on the White House balcony is our photo of the week ... The bunny looking slightly more shocked to be with the leader of the free world ...
That's all for this week from The West Wing, Whisky, Tango, Foxtrot ... You can check out the series of blog posts here
So what happened to Markets?
The Dow closed at 20,566 from 20,453. The FTSE closed at 7,114 from 7,327.
Sterling was up against the Dollar to $1.279 from $1.253 and was up against the Euro to €1.279 from €1.1179. The Euro moved up against the Dollar to 1.068 from 1.062.
Oil Price Brent Crude closed at $51.72 from $55.64. The average price in April last year was $41.58.
UK Gilts - yields moved down. UK Ten year gilt yields closed at 1.05 from 1.057. US Treasury yields moved down to 2.22 from 2.232. Gold closed at $1,286 from $1,286.
That's all for this week. Don't miss our economics update at PwC Manchester on the 18th May.
© 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing.
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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.