UK policymakers were probably sighing with relief...

April 24, 2011 - PRLog -- UK policymakers were probably sighing with relief at the sight of the
latest batch of economic data. The rates of inflation, unemployment and
wage growth all fell, giving the Monetary Policy Committee (MPC) and the
Chancellor grounds to feel a little more comfortable about their current
policies. On top of this, there is more evidence that the UK is
rebalancing towards exports and that consumers are cutting back on
imported goods too. So we can feel a little bit more secure this week.
But as changes to taxes and benefits hit pay packets this month, and the
first estimate of Q1 GDP is released next week, there are still
uncertainties left to navigate. Like walking over the bridge of sighs,
there remains a lot to be nervous about ahead. There will be no economic
update next week due to the Easter holidays. I wish you all a happy
break.

           There was a surprise fall in the UK consumer inflation rate in March.
CPI inflation fell to 4.0%y/y, from 4.4% in February. Price rises this
time last year helped keep the rate down, but so did food prices, which
fell 1.4%m/m. The retail price index (RPI), which includes housing
costs, fell to 5.3%y/y from 5.5% in February. Unscrambling the effects
of energy and taxes, UK inflation is lower than the headline figure
suggests. Core inflation (excl. energy, food and tobacco) was 3.2%y/y in
March, while CPIY (CPI excluding indirect taxes such as VAT) slowed to
2.5%y/y. The MPC will have been relieved to see some slowdown in price
rises, a result of belt tightening, but high oil prices remain a
challenge.

           UK unemployment rate falls to 7.8%. The number of unemployed fell by
17,000 in the three months to February, bringing the rate back down to
7.8%. The Chancellor will have sighed with relief, although he will have
been less impressed that the numbers claiming jobseekers allowance
increased by 7,000. Growth in private sector employment (428,000) easily
outpaced a fall in public sector jobs (138,000) in 2010. This needs to
continue once the austerity measures bite, but with employment growth at
a two year high of 143,000 in the three months to February, and 140,000
of these full time jobs, we can probably afford to be cautiously
optimistic.

           Still no sign of a pick up in wage inflation. More sighs of relief at
the Bank of England as average weekly earnings growth (including
bonuses) fell to 2%y/y in the three months to February, which was much
better than expected. Underlying earnings growth (excluding bonuses)
came in at 2.2%y/y. Households will be unhappy at the squeeze on their
real earnings, but continued weak wage growth gives the MPC comfort that
high inflation is not becoming entrenched. Pay is still growing faster
in the public sector than in the private sector, but with pay freezes
ahead and no sign of any pick up in private sector wage growth, the MPC
probably has more time to wait before changing interest rates.

           UK house prices are broadly stable, but London pulls away. The official
measure of house prices used in the RPI shows prices increased by 0.3%
in the UK in February (although this records prices agreed about three
months earlier). Prices in London grew by 5.5%y/y. London's
outperformance is backed up by surveyors. Although 23% more of them
thought prices in Great Britain fell in the last three months than
increased, London bucked the trend, with 17% more surveyors thinking
prices increased rather than fell. Supply is probably the key. The sales
to stock ratio, which is a really good leading indicator of house price
growth, has been higher in London and the South East than in other parts
of Britain.

           UK trade position improves as UK consumers tighten their belts. There
was also good news on trade. The UK trade deficit narrowed by £1.5bn in
March, reaching a 12 month low of £2.4bn. Exports, particularly of
goods, jumped 2.7%m/m (excluding oil) over the month, while imports
fell. Consumer goods imports shrank by a full 4.5%m/m in February,
reflecting subdued demand from UK households. A continuation of
rebalancing towards trade will do wonders for the UK recovery, given the
dual headwinds of fiscal austerity and household deleveraging.

           The US trade gap also shrank in February. The US trade deficit in goods
and services narrowed in February to $45.8bn, down from $47bn in
January. Even though exports fell by 1.4%m/m, reduced demand for cars,
capital goods and industrial supplies meant imports fell more. This
coincided with the first Chinese trade deficit in seven years in Q1
($1bn). Although this is partly due to higher commodity prices and
seasonal effects, import growth has outpaced export growth over the past
two years. These trends will need to continue to achieve an orderly
rebalancing in the global economy.

http://www.griffinandking.co.uk/

Article sourced from:
https://www.makeitrbs.com/uploads/cewb_180411.pdf

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