Today opened with the news that a staple of UK conversation is being blamed for a period of weakness in the UK economy. Yes the rain which is yet again falling as I type this has taken the rap for a slowdown in UK retail sales according to the British Retail Consortium. Apparently this rain is rather special as it can reduce retail sales but has no affect on a drought even if it falls at record levels. You know the sort of thing, wrong type of rain,wrong time of year etc.
The Weather takes the blame quite a lot these days
One may forget that overall the UK climate is rather mild compared to many as we review the supposed impact on its economy. First we had the cold snap and snow of two winters ago which got the blame for the 0.5% fall in Gross Domestic Product of the fourth quater of 2010. When we had warmer and more temperate weather in the last quarter of 2011 but also had economic shrinkage (GDP -0.2%) we blamed the warmer weather!
Manufacturing contributed the most to the decline, followed by electricity, gas, steam and air conditioning supply
Yes electricity and gas output fell because it was not so cold meaning the weather may well be becoming a fan of the Alan Parsons Project.
I just can’t seem to get it right
Damned if I do
Damned if I don’t
The British Retail Consortium Report
Care is needed with these numbers as the headline figure of a 3.3% year on year fall on a like for like basis is not what it may seem. After all wouldn’t you expect a new shop to take some business and on the other side of the ledger shops which close automatically fall out of the numbers? Accordingly we see that there was a lower fall of 1% when all the numbers are compared. So weaker but not calamitous as March did show some growth.
It is also true that retail sales numbers are erratic so we will need much more than one months data to establish a trend. However I have noticed that in my area of South-West London I have noticed quite a few shops closing down recently and wondered if readers elsewhere have seen evidence of the same thing. Added to this theme is the failure of Clinton Cards this morning which has suspended its shares on its way into liquidation.
Of course if the rain dampens retail sales then surely the drought which preceded it must have boosted them!? Er apparently not as we see this reported.
the health of the retail sector continues on a downward trajectory
What about employment?
Here we saw some better news this morning as the KPMG jobs report told us this.
Permanent staff placements increased in April, continuing the trend seen since the start of 2012. That said, the rate of growth was modest and the slowest since January.
So reassuring for now although the slowing of the employment growth is a worry if hardly a surprise with current circumstances. Although somewhat confusing the picture for temporary staff is weaker.
Agencies’ billings from the employment of temporary/contract staff fell again in April.
It is confusing to see permanent work growing with temporary work weak at such a time. But the report does point out that legislation has affected temporary work which if it has at such a time deserves the hash-tag omnishambles for our government.
One ray of sunlight if I may continue the weather related theme is engineering and construction in the Midlands where employment has grown for six months. Let us hope that continues as we need growth in engineering, and it would be nice to confound the doom-sayers who claim we do not manufacture anything these days.
The Housing Market
The figures for April give us a hint of what may happen to the UK house market as we move forwards after the period where first-time buyers paid lower rates of stamp duty on purchases. From the Royal Institute of Chartered Surveyors.
the (seasonally adjusted) headline price net balance in April slipped from -11 to -19
Turning to activity, newly agreed sales weakened with the net balance turning negative once again (from +10 to -6).
So we see that both prices and volumes fell which sends a clear message which the RICS report attempts to spin by using words such as “broadly”. And if we look through the upwards-bias to future expectations we see signs of further price falls to come.
the three month price outlook (seasonally adjusted) declined in April, reflecting the still fragile level of confidence in the market. Indeed, the net balance dropped from -3 to -17.
If we recall that standard variable mortgage rates have begun to rise and that there are further rises to in the pipeline this outlook is hardly a surprise.
UK Output
If we look at our most recent purchasing mangers reports-which are the most timely signals we get- we see this.
Manufacturing 50.5; Construction 55.8 and Services 53.3
So whilst we are seeing a slowdown in growth we do according to these reports still have some which compares very favourably with places like Spain and Italy who have slammed into reverse.
The problems of the Euro will not help
As we see more and more countries get dragged into the morass of the Euro zone crisis we face the grim realisation that many of these are our trading partners and friends. There will be two effects of this. Firstly it will be harder to export to weaker economies and indirectly the pound is likely to be stronger against the Euro. Perhaps much of the latter effect has already happened as we have pushed above 1.24 Euros and no doubt short-term traders are looking for a retracement.
Record Lows for UK government bond yields
I am slightly exaggerating here as our ten-year yield has fallen to 1.923% this morning which does not quite equal the 1.917% of the 20th of January (thanks Ian) but I think you get the idea. I tweeted last night that the UK Debt Management Office should be issuing as much stock as it can at such levels and I hope it gets the message. This would be an excellent deal for the UK taxpayer in my view although it begs the question of who is buying!? But of course we recall that there is so much official interference in markets these days that prices and yields are not the guide they once were. Frankly we should be grateful for that as otherwise our bond yields imply a definite recession and probable depression.
Spain
Regular readers will be aware that I feel that Spain is in a severe downturn and is in danger of an economic depression. So her bond yield is lower than ours right? Er no as her ten-year bond yield has gone over 6% this morning. If you really look like you are moving into a depression investors stop chasing yields lower as they mull solvency or rather potential insolvency.
There are ever more rumours of further bank bailouts in Spain causing this with the latest one being that an extra 20-40 billion Euros will be required. I wouldn’t be worrying about the lower end of that range if history is any guide.
Comment
So we see that the UK economy seems to have some weak growth which we should be grateful for in these times. However the combination of troubles in Europe,rises in mortgage rates combined with an already weak housing market and a strengthening currency poses problems ahead. Against that finally the oil price has weakened as Brent crude has dipped below US $112 today so some relief may be gained there.
So the Bank of England will be considering more Quantitative Easing tomorrow and the vote could easily be tight. Ironically the main advocate Adam Posen shot himself in the foot when he declared this recently in the London Evening Standard.
the first thing rate-setter Adam Posen wants us to know is that he’s far happier about life than he was six months ago.
This economic reference may put him in a “class of one” as Brian Clough once so memorably put it although at the other end of the ability spectrum from Mr.Clough. Still never mind its all okay as he is.
the man who has largely called the economy right over the last couple of years
Not going to be quite so easy to call for more QE at tomorrow’s meeting is it? Well not without yet another u-turn for both him and his interviewer. Largely called the economy right? Another entry for my new financial lexicon..
