Sales Boom Continues, Inflation Soars ... the MPC looks on

Rock bottom rates and more of Mr Carney's "infuriating obfuscations" the viewpoint from Phil Aldrick in the Times today. "Wouldn't it be refreshing if Mark Carney were to drop his guard just once and admit the Bank of England is never going to increase rates on his watch."  Well maybe!

It would certainly make for a better understanding of policy. This week the ONS delivered more information on strong sales, rising inflation, more people in work and vacancies rising in an economy growing at around 2.4%.

The Bank is reluctant to raise rates, fearing the squeeze on incomes would hit spending and damage the recovery. Can the standby stance be maintained? This week inflation CPI basis jumped to 2.7%. Service sector inflation hit 3.0%. Producer output prices moderated slightly to 3.6% and input costs eased to 16.6%. The latest data for March suggests earnings in the three months to March were up by 2.7% in the private sector. Public sector pay restraint confined earnings growth to just 1.0%. Earnings overall were up by 2.4%. Unemployment fell to 1.541 million and the number of vacancies reached a record high at 777,000.

The retail sales boom continued with sales values up by 7% in April. Sales volumes jumped back to 4.0% from an average of just 2% in the first quarter. The average spend in the first three months of the year was 4.8%.  Online sales jumped by 19% accounting for 16% of all retail sales. There is no slowdown in retail sales growth. The spending boom continues as real rates remain low.

Deming would say "In God we trust, everyone else must bring data". The data brought, objective analysis presents a "clear and present danger" to the benign monetary stance under the Mark Carney.

In other news this week ...
At the beginning of the month, the PMI Markit manufacturing Index increased to a three year high, signalling a solid start to the second quarter in April. This week the CBI Industrial Trends Survey confirmed, the strong trend of growth, continued into May.

"Manufacturing order books improved on April, and output growth
accelerated in the three months to May", the CBI stated. No wonder Carolyn Fairbairn is smiling.

Rain Newton-Smith, CBI Chief Economist, said: “The summer sun has come out early for Britain’s manufacturers. Robust demand at both home and abroad is reflected in strong order books, output is picking up the pace. On the other side of the coin, we have mounting cost pressures and expectations for factory-gate price rises." Strong order books and rising prices the overview. It is time for the "infuriating obfuscation" to end. The Bank should begin the move to normalize rates and soon.

The Tory or rather "May Manifesto" was released this week. "Blue sky thinking with a hint of rouge" will not please big business. Intervention in the board room with worker representation and curbs on pay will not curry favor among the ranks of the CBI. Arbitrary immigration caps on numbers will compound recruitment difficulties. The "jobs tax on Johnny Foreigner" is perverse and economically illiterate. May's please all centrist manifesto may win the election. The bigger the landslide, the bigger the bank bench problems will emerge. The play full spat over "winter fuel for the well fed" is just the beginning. The dementia tax will be challenged by the back benchers, if they can remember of course ...

So what happened to Markets?
The Dow closed at 20,832 from 20,919. The FTSE closed up at 7,470 from 7,386.

Sterling up down against the Dollar to $1.304 from $1.289 and was down against the Euro to €1.163 from €1.186. The Euro moved up against the Dollar to 1.121 from 1.086.

Oil Price Brent Crude closed at $53.60 from $50.77. The average price in May last year was $46.74. The Russian - Saudi output accord boosted prices.

UK Gilts - yields moved down. UK Ten year gilt yields closed at 1.10 from 1.15. US Treasury yields moved down to 2.25 from 2.38. Gold closed at $1,251 from $1,224.

John
That's all for this week. Thanks to all who attended the Quarterly Economics Briefing at PwC this week. Our Economics Forecasts for May will be released soon, following the second estimate of GDP from the ONS

© 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing.
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