Economics news – UK recovery continues as markets push to new highs
Economics news – latest data suggests the UK recovery continued into April, on the back of strong service sector growth. The FTSE 100 closed above 6,500 as global stock markets rallied following US jobs data. The Dow closed above 15,000 for the first time in history and the S&P index pushed through the 1,600 point barrier. Fill your boots with green shoots?
US non farm payrolls increased by 165,000 in April according to the US labor department ahead of consensus expectations of around 145,000. Of itself not a great number but enough to convince the US and world recovery is on track.
In the UK, the influential Markit/CIPS UK PMI® data series were released this week. Service sector growth improved again in the month of April. Businesses recorded the fastest increase in eight months, as new business orders increased. The Key Business Activity Index rose to 52.9 from 52.4 in March. The service sector measure has been in positive territory since the beginning of the year, with a steady increase month on month.
Not so the manufacturing sector, manufacturing “stabilized” in April, as the key activity index hit 49.8 marginally below the steady state level of 50.0. New orders increased for the first time since January pushing the index up from 48.6 in March, better but not yet growing.
In construction, output was in negative territory for the sixth month in succession. The index recorded a level of 49.4 up from the 47.2 level recorded in March. Some improvement in housing activity was evident but commercial and civil construction activity remained muted.
So what does this mean? Well, for the year as a whole we are sticking with our GDP growth forecast of plus 1% growth. Service sector growth is the key to recovery despite the weakness in manufacturing and construction. Is Plan A on track? Hardly.
The requirement for some boost to capital spending remains. The reintroduction of public sector infrastructure projects with some boost to housing both public and private, the key to construction and to a lesser extent manufacturing recovery.
In Europe the ECB slashed rates, a little late in the cycle, by 25 basis points. In Canada, Mark Carney, the soon to be governor of the Bank of England, gave some guidance – on forward guidance.
“To reflect fully financial markets dynamics, the deceptive simplicity and elegance of complete markets operating in linear, rational expectations environments must give way to the chaotic reality of heterogeneous beliefs, risk taking behaviour, feedback effects from excess leverage, endogenous uncertainty and a non trivial role for financial intermediaries”. That’s “difficult to pronounce”, admitted the Governor. Well at least they can spell it. Excellent.
What happened to sterling.
Sterling rallied on the news, against the dollar closing at 1.5563 from 1.5450. Britannia continued to battle against the Euro, unchanged at 1.1863 from 1.1877.
Oil Price Brent Crude closed up $104.2 from $103.3.
Markets, The Dow closed up at 14,974 from 14,712 and the FTSE closed at 6,521 from 6,426. UK Ten year gilt yields increased to 1.75 from 1.70 and US gilt yields closed at 1,74 from 1.67.
That’s all for this week, don’t miss The Sunday Times and Croissants out tomorrow.
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