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Month: July 2017

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Confusion Reigns

Stick or twist? U.K. outlook unclear by every measure

There is no right answer but, then again, there is no wrong answer either. Politics, monetary policy, economics; each has a unique set of drivers that are subject to interpretation like never before.


Precedent isn’t any help. In politics the two major Governments of the past thirty-five years, Thatcher’s and Blair’s, no matter what you thought of them brought a kind of stability as we knew what to expect until we didn’t and they got removed. The lurch from right to left or vice versa brings turmoil and that is what we are seeing now.

Austerity as a doctrine has run its course, certainly as far as the population is concerned. But is tax tax tax, spend spend spend going to fare any better than cut cut cut? There is a fair chance we are going to find out.

Monetary Policy

It was hailed as a great idea when, of all things, a labour Government released the reins on economic decision making and created the Monetary Policy Committee. Government finally accepting that using a broad-based group of industry professionals to run the economy was better than a bunch of career politicians. If only that could be applied to public transport, health and education, Utopia would be on the horizon.

The MPC is now fractured as never before. This is not particularly a dreadful thing as any decision is not politically motivated. However, the MPC’s mandate includes a “crystal ball clause” where how the economy will look in two years’ time must be considered. Imagine that! Confused? No question.

Will there be a hike on August 3? Quite possibly, or probably or certainly. Who knows. The new member Silvana Tenreyro, is going to suddenly become much sought after. Replacing arch-hawk, Kristin Forbes, it is yet to be determined Tenreyro’s avian leaning.

McCafferty and Saunders will vote hike, Haldane will vote Hike, Carney? Maybe hike, maybe not. Broadbent, Cunliffe and Vlieghe; hold.

Welcome to the MPC Ms. Tenreyro.


Real wages are falling. Is there anything more devastating to the economy no matter the reason? People are earning less for the same amount of work. Higher inflation, cost cutting businesses? It doesn’t really matter. Concern over keeping your job is one thing and, unless you work for Tesco or a bank, that has been replaced by what you can buy each week.


There, now I have said it. The genie is out of the bottle, Pandora’s box is open. The elephant is in the room.

Is that where the U.K. is heading? Most commentators see the U.K. economy slowing. Another 0.2% rise in GDP in the three months to June is likely to be announced by the NIESR on Friday. This is hardly stellar but a rate hike in such circumstances? No wonder Carney is concerned.

Employment is, according to the Government, at record levels. Thank the gig economy, zero hours contracts and kids on Government sponsored training schemes for that. On the dole? No, I’m on a training scheme that the Government pays me to be on? Semantics! You are unemployed!

Kim; no longer a cartoon joke

North Korea gets ever closer to being able to reach the U.S. mainland with a nuclear missile. So, what! They would never launch and if they did, America has sufficient technology to intercept it before wiping North Korea from the face of the earth.

Not necessarily so. There are no guarantees in diplomacy. Add in China, Russia, Japan and South Korea and you have a heady cocktail of self-interest.

Market reaction? But the JPY and CHF. Risk aversion is coming, let’s hope for California a nuclear tipped missile isn’t!




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Pound weaker as data disappoints

Manufacturing output falls

While the consumer has been the mainstay of the U.K. economy over the past year or so, manufacturing has been steady not causing many major alarms yet not growing particularly strongly either. This had been a picture repeated in both the Eurozone and U.S. but yesterday that picture changed somewhat.

While it is never wise to attach too much attention to a single month’s data (ask Mark Carney) the fall in yesterday’s release of ISM manufacturing figures will concern the MPC.

Manufacturing fell from 56.3 in May to 54.3 in June. The May number was also revised slightly lower. A read above 50 still means that manufacturing is expanding but the rate has slowed considerably.

The same data in the Eurozone showed that manufacturing remains fairly constant reaching 57.4 following 57.3 in May.

There was a major turnaround in the U.S., however, as output rose to 57.8 from 55.2, the largest single month increase in three years.

The dollar index reacted positively rising above 96.00 but facing strong resistance. The pound and Euro corrected but still appear well supported at slightly lower levels.

 MPC Dove counters rate hike argument

Renowned MPC dove, Gertjan Vlieghe, a well-known dovish voice on the BoE MPC spoke out yesterday over the calls for a tightening of monetary policy and higher interest rates in the U.K.

Vlieghe has been a lone dovish voice, calling for a rate cut in the wake of the Brexit referendum a month before his colleagues caught up.

Yesterday, in an interview, he said that the risk of a hike too soon outweighs the risk of one proven to be a little late. He said, “This is an environment where a premature hike would be a bigger mistake than one that turns out to be slightly late”. Given the recent comments from his colleagues that that ship, if it hasn’t already, is very close to setting sail, his may be a voice in the wilderness.

The pound, already suffering following weak data took this as a sign that a rate hike isn’t as cut and dried as had been assumed after recent comments from other MPC members. A balanced discussion can now be expected when the MPC next meets on August 3rd.

RBA on hold for longer than expected

Citing fears over the housing market and any change to policy which could strengthen the AUD, the Reserve Bank of Australia not only held rates unchanged overnight but produced a more dovish than expected statement.

While the market didn’t expect a rate hike at this meeting to defer any hike until sometime in the future. It wasn’t all an anti-climax; the statement was fairly upbeat on business condition which have been improving gradually and a marked improvement in capacity utilization.

The AUD fell following the announcement and given the probable divergence in policy, a further fall is possible.

Pay Cap row intensifies

Just as Theresa May was getting her bikini out and booking a leg wax ahead of her summer holidays another row has flared up that threatens to derail her.

The opportunistic but tactically brilliant attempt from the opposition to force an abandonment of the fiercely unpopular 1% cap on public sector pay increases has created ripples throughout the Government. Two senior ministers and a host of less significant but equally vociferous members have voiced an opinion that the time has come to loosen the purse strings.

Mrs May is, so far, against any change in policy and this could be the start of the campaign to oust her.