GMP Independent Financial Advisors LLP

Thu, 16 Jul 2009 13:04:36 GMT

Quite possibly, the six most important sets of economics stats on the UK economy have seen the light of day recently.

The latest official inflation figures are out. Official data on unemployment (which is bad), and data on trade (which is good), hit the streets. There’s good news on producer prices, and even good news from the High Street. Finally, there’s news on wage inflation.

More to the point, put the six reports together and a bright light shines on the current state of UK PLC.

The consumer price index is below target, at last. In the year to June, the UK’s official rate of inflation was 1.8 per cent. That’s the lowest rate since August 2007. To put that in context, as recently as September last year the inflation rate stood at 5.2 per cent.

For some time now the consumer price index has proved to be a resilient beast. The combination of the falling pound and the more recent rise in commodity prices have propped it up. But the effect of the falling pound was just a one-off. Once sterling stopped falling, and the inflationary effect had worked its way through the system, the way was left open for the continued march downwards in this index.

As for the retail price index, this fell to minus 1.6 per cent. Let’s run that one past you again – the retail price index: this, remember, is the index that not so long ago inflation hawks said we should be using as the proper guide to inflation, fell to minus 1.6 per cent.

So much for the prices you and I are paying. What about behind the scenes? Producer prices tell us what is likely to be happening down the line, so let’s take a look at this reading.

Well, in the year to June, input prices, that’s what producers fork out for the goods and services they buy in, fell to minus 11 per cent. This index has been in negative territory for four months in a row.

As for output prices, for the second month in a row this index was negative too. In the year to June the rate of inflation in producers’ output prices was minus 1.2 per cent.

There are really two bits of significance you can read into this data. The fact that input price inflation is still greatly outstripping output inflation shows that producer margins must be improving. And that has to be a good sign. Secondly, the fact that output inflation is negative shows how modest the inflationary pressures on the High Street are. As a result, expect the CPI index to continue to fall rapidly.

The news from the High Street was encouraging. According to the latest report from the British Retail Consortium, like for like sales rose by 1.4 per cent in June. That’s twice in the last three months this index has been positive. But, alas, it still seems that the High Street is over reliant on food sales. (We tend to buy more food in a recession, because we eat out less.) The good weather helped, and did push the sales of outdoor-type goods, so that’s barbies and garden furniture, sales at garden centres, etcetera, etcetera. But, overall, non-food sales are still in negative territory, with furniture and floorings, along with house textiles, showing the largest declines.

As for our trade, well, things are getting better. The gap in trade with goods and services fell to £2.2bn, from £3.0bn. So that’s a move in the right direction. Unfortunately, the improvement is largely coming from falling imports – so that’s something of a mixed blessing. The better route would be for imports to stay as they are, but for exports to rise. Well, that hasn’t happened yet, but at least there was a positive sign in the latest data. The fall in exports reduced quite sharply in June.

That brings us to the bit of economic data that concerns most of us: the news on jobs.

Here there was a somewhat odd showing. The claimant count rose by 23,800. Now, any rise in the claimant count is disappointing, but this was the lowest rise in over a year. But the ILO measure, which includes everyone who is unemployed, not just those claiming unemployment benefit, rose by 281,000 in June. That was the biggest quarterly increase ever recorded.

But what is really worrying, is this. Maybe the reason why the clamant count is rising so slowly is that many of the unemployed have given up hope of finding work, and as a result, are no longer eligible for the benefit.

Capital Economics reckons unemployment won’t stop rising until growth returns to 2.5 per cent a year, and that could be a very long way off.

As for wage inflation, the average growth rate in average earnings without bonuses fell from 3.4 to 2.2 per cent.

Changes in average earnings is where the real long term inflationary pressure will come from. It is an index to watch.

Article author: Michael Baxter from Defaqto,to see more articles by the author go to: http://defaqtoblog.com/iabn/

For financial advice call Mark or Clare at GMP Independent Financial Advisers LLP on 0207 2886400

 

 

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