Days before the referendum vote and the Leave camp have momentum. Research by Ipsos Mori this week has Leave on 53% and Remain on 47%. Compare that to a month ago and the figures were reversed. Are we really going to leave the EU?
It’s hard to believe but then nearly half of voters think Britain sends £350 million to Brussels every week and Turkey will be fast tracked into the EU. Boris Johnson and Nigel Farage are more trustworthy, it would appear, than the Bank of England, the WTO and the IMF.
A simple message, of dubious authenticity, stated with intense frequency is the winning formula. Better still put it on the side of a battle bus and it must be true.
Immigration is the touch point issue. The root of all evil it would appear. Problems with the NHS, welfare, schools and housing, then blame immigration and the EU. Make Britain Great again, shut the borders. Deny the economy, the workforce it needs to secure the growth, to fund the services and facilities, we need now and in the future.
In the US sanity is prevailing. Hillary Clinton is opening up a six point lead over Donald Trump. Clinton is leading in the polls and in the campaign pot. Republican funding is drying up in the face of the right wing invective.
There is no business case to leave the EU. There is no economics case to Leave the EU. The political argument is a Hobson’s choice. The Social argument mainly about immigration. Building a wall along the border with Mexico makes no more sense than building a wall along the white cliffs of Dover.
Let the people decide but give them the facts, not some neofacist rhetoric, we will all live to regret. Time is running out to explain why immigration is a good thing for the economy … our universities need the students and our businesses need the workers. Quod Erat Demonstrandum.
Jobs and Unemployment …
Britain’s unemployment rate fell to the lowest level in more than a decade according to data from the ONS this week. The number of people without a job fell to 1.67 million in the three months to April, 148,000 fewer than for a year earlier. The rate of unemployment fell to 5% from 5.1% prior period.
The number of vacancies increased to 749,000 in May. The claimant count in the month was 746,000. The number claiming job seekers allowance was just 591,000. There are more vacancies than people looking for work.
There were over 670,000 vacancies in the service sector, predominantly in retail (143,000) and health, welfare and social work. (120,000). Sooner or later labour compression rates will impact on pay …
Pay Growth …
Pay growth has begun to pick up, suggesting a hike in interest rates by the Bank of England could be on the agenda in the Autumn. Average earnings including bonuses increased by 2.5 per cent in April. Private sector pay increased by 2.7%. Public sector pay was held at just 1.8%. Business services pay increased by 2.6%. The boost in wages was most pronounced in the construction sector, where pay leapt by 10% in the month. If only more East Europeans were bricklayers, then would there be no complaint.
Retail Sales …
Consumers are spending. Retail sales increased by 6% in May, up just over 3% in value. Online sales increased by almost 22%, now accounting for 14.3% of all retail spending. In food stores, volumes increased by just over 4% but prices fell by 2.5% generating an increase in the value of sales by just 1.6%. It's tough on the street and in the retail parks.
Inflation CPI basis held at 0.3% in May. Goods inflation fell -1.8% driven lower by a drop in food and clothing prices. Service sector inflation increased to 2.6% from 2.4% in April. Education, restaurants, hotel bills and financial services continued to place pressure on the overall service sector price level.
Producer prices remain subdued but demonstrating clear evidence of a turning point. If oil holds above $50 through the summer, the Autumn inflation outlook will be materially different.
Bank of England …
At its meeting ending on 15 June 2016 the MPC voted unanimously to maintain Bank Rate at 0.5%. The Committee also voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion. No surprise there but the bank issued another warning about Brexit.
'As the Committee set out last month, the most significant risks to the MPC’s forecast concern the referendum. A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise.'
Which way would rates go? We can’t be sure. Lower growth, higher inflation with a fiscal squeeze from the Chancellor? Maybe we should move to the EU ...
Over in the U.S. …
The US Federal Reserve kept interest rates unchanged this week. Two rate increases are still possible this year, despite a reduction in economic growth forecasts for 2016 and 2017. Fed policymakers gave no indication of when they might raise rates but rate rise next month is still a remote possibility assuming the US jobs market strengthens.
Members of the federal open market committee left the target range for overnight lending rates between banks at between 0.25 per cent and 0.5 per cent. Updated forecasts mark annual GDP growth at just 2 per cent for the foreseeable future, slightly lower than the 2.2 per cent projections at the March policy meeting.
So what of rates?
In the UK, we still expect rates to be at least 0.75% by the end of the year, with two rate hikes to 1% a further (remote) possibility. That’s assuming we vote to “Remain” on the 23rd June.
So what happened to Sterling?
Sterling held against the Dollar at $1.432 from $1.433 and down slightly against the Euro at €1.269 from €1.2781. The Euro was unchanged against the Dollar to 1.128.
Oil Price Brent Crude closed at $48.74 from $50.69 The average price in June last year was $61.48.
Markets, were down - The Dow closed up at 17,674 from 17,881. The FTSE closed at 6,021 from 6,115.
Gilts - yields moved down. UK Ten year gilt yields closed at 1.14 from 1.23. US Treasury yields moved to 1.61 from 1.64.
Gold closed at $1,292 from $1,272.
That's all for this week. Don't miss Our What the Papers Say, morning review! Follow @jkaonline and download The Saturday Economist App! Our review of the Brexit facts and figures out now! Download Here!
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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.