Posts Tagged ‘British Retail Consortium’

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When surveys start concluding that certain vital sectors of the UK economy are enjoying the best growth rate since 2006, you know you need to start taking things more seriously. Until recently the UK recovery looked – how can one put it? – well, it looked quite nice. Surveys and hard data pointed to growth; they suggested that the UK was comfortably clear of recession territory, but there was always that reminder that the recovery was really quite lacklustre compared to what it was like before 2008. But then yesterday and this morning it changed. Not one, but two surveys have seen the light of day in the last 24 hours, which suggest that certain vital sectors are now seeing their best performance since 2006.

Just to remind you, the UK economy may not be in recession, but it is still in a downturn. GDP is still in excess of 3 per cent below the 2008 peak, and that is a record. Data goes back to the early years of the 20th Century and in that time no downturn has lasted as long. In fact so severe is the downturn that some are going further and calling it an economic depression. It is a funny sort of depression though. It is undeniably the case that unemployment is too high, but then neither is it at the kind of level that one would normally associate with economic depression. What is different this time around is that while employment has been higher than one might expect given what is happening in GDP, average wage increases have been lower. It is now more than three years since average wage increases were higher than inflation.

The latest data says the UK economy expanded by 0.5 per cent in Q2, compared to 0.3 per cent in Q1. So that’s an improvement, but the fact is that 0.5 per cent growth is not that good. At this stage in the economic cycle, with the economic output so far behind potential, the economy should be booming. Hold that thought. Four surveys have seen the light of day since last Thursday, and between them they suggest that the UK economy is finally growing the way it should be – it may even be close to booming.

First off, there was the latest Purchasing Managers’ Index produced by Markit/CIPS for manufacturing. The index rose to a 28 month high in July, with a score of 54.6 – with any score over 50 supposedly denoting growth. This was the best bit from the report: “New export business rose at the fastest pace for two years, reflecting increased sales to Australia, China, the euro area, Kenya, Mexico, the Middle East, Nigeria, Russia and the US.”

Second off, we got the latest Purchasing Managers’ Index, again from Markit/CIPS, this time for construction. The index pointed to the fastest rate of residential construction since June 2010 and the steepest improvement in new order levels since April 2012.

So far the story is okay. Surveys point to an economy improving, but at best they only suggest the performance is comparable to what we saw in 2011, maybe late 2010. But the UK economy was not in good shape back then, so big deal. The UK economy is not as terrible as was in 2012, but it is as bad as it was in 2011.

But then yesterday the story became altogether more promising. The latest Purchasing Managers’ Index for services rose to its highest level since 2006. In fact with the headline seasonally adjusted Business Activity Index standing at 60.2, it was the highest reading since December 2006.

But even that is not the best bit. July also saw the sharpest rise in backlogs of work since February 2000. Now when backlogs rise, you can normally expect output to rise in the following months to try to catch-up. In other words, if anything, the next few months should be even better. Collectively, the three PMIs point to quarter on quarter growth of 1.5 per cent. If that proves right, the UK will have enjoyed its fastest growth rate in 14 years.

Finally, this morning saw a survey from the British Retail Consortium indicating that retail sales rose by 3.9 per cent in July, which is the best year on year rise since 2006.

Okay, there are snags. For one thing much of the expansion appears to be fed by UK households saving less, and borrowing more. Not everyone welcomes this development. For another thing one-offs partly explained July’s retail growth: with the good weather and sporting success being cited for reason for higher sales.

But lurking in the data are signs of something that may be more permanent. The rather unfortunate timing of the economic depression in the UK’s largest export market – the Eurozone –has really not helped things. It is encouraging that there are signs that the UK is exporting more outside the euro area. So, let’s enjoy the moment.

Some are now patting themselves on the back. They say that the economic recovery proves they were right. Austerity works, QE works. But is that really right? Read the next piece for an answer.

Does the recovery prove that QE works?

© Investment & Business News 2013

Every quarter, we hear the excuses. Inflation was higher than predicted in than previous inflation report because… Growth in GDP was less than expected because…

If there is one thing we have come to expect from inflation reports, it is that the forecasts will be changed – and for the worse.

But, and lean in close – this will be whispered so as not to jinx it – the next inflation report is due out this week, and talk is that the Bank of England may revise its estimates of growth – upwards. It may revise its estimates of inflation – downwards.

On the growth front, the last week or so has seen a fair dollop of good news. The latest Purchasing Managers’ Indices were up, with the sub index tracking new export orders in the manufacturing sector up to its highest level for a couple of years.

The latest news on industrial production, especially manufacturing, was encouraging, and now the National Institute of Economic and Social Research (NIESR) has estimated that in the three months to April the UK economy expanded by 0.8 per cent.

Okay, 0.8 per cent expansion is not exactly a scintillating pace, but compared to what we have become used to, it really is rather good.

As for inflation, according to the British Retail Consortium, shop price inflation was just 0.4 per cent in April, the lowest level since 2009.

It is just that NIESR said underlying growth was not so good, and don’t forget that UK households will only feel better off once wages rise faster than inflation. In the three months to the end of February, wages rose by just 0.8 per cent compared to a year ago. Inflation must fall much, much further, or wages rise much faster before households feel better off.

Incidentally, the latest Bank of England inflation report will have an interim feel about it. The new governor, Mark Carney, will have taken over by the time of the next one. And the August report will look at ideas for loosening the bank’s targets for inflation too.

© Investment & Business News 2013