Firstly let me open with my best wishes to those caught up in the terrible event at Westminster yesterday which is somewhere I pass through regularly. Let us then review some better economic news in a period where the UK statisticians overload particular days. If we go back to Tuesday where there was a panoply of inflation data there was also this about the public finances.
Public sector net borrowing (excluding public sector banks) decreased by £2.8 billion to £1.8 billion in February 2017, compared with February 2016; this is the lowest February borrowing since 2007.
I recall that the January numbers were also more positive and this led to this.
In January and February 2017, the government received £13.4 billion and £4.7 billion respectively in self-assessed Income Tax, giving a combined total of £18.1 billion. These represent the highest combined self-assessed Income Tax receipts on record (records begin in 1998).
So good news and other forms of revenue were good too.
Similarly, in January and February 2017, the government received £6.2 billion and £2.2 billion respectively in Capital Gains Tax, giving a combined total of £8.4 billion. These represent the highest combined Capital Gains Tax receipts on record (records begin in 1998).
It would seem that Capital Gains Tax is more significant than might be assumed. I guess the higher house prices ( it is paid on second homes and therefore buy to lets) and maybe profits from the equity market are driving this. I am surprised that the Bank of England has not been trumpeting this as part of its wealth effects, have they missed it?
Also the overall tax situation for the financial year so far has been strong.
In the current financial year-to-date, central government received £616.1 billion in income; including £465.6 billion in taxes. This was around 6% more than in the previous financial year-to-date.
There was a change to National Insurance rates but even allowing for that we are seeing a pretty good performance and ironically after the talk of extra spending and fiscal expansionism the numbers may well be telling a different story.
Over the same period, central government spent £638.1 billion; around 2% more than in the previous financial year-to-date.
With inflation rising that is of course less in real terms than it first appears and meant that we did better here.
Public sector net borrowing (excluding public sector banks) decreased by £19.9 billion to £47.8 billion in the current financial year-to-date (April 2016 to February 2017), compared with the same period in the previous financial year;
There was good news as well in the February data for Retail Sales.
Estimates of the quantity bought in retail sales increased by 3.7% compared with February 2016 and increased by 1.4% compared with January 2017; this monthly growth is seen across all store types.
However the monthly numbers are erratic and the seasonal adjustment is unconvincing. February was partly so good because January was revised even lower. But the year on year comparison was strong.
In February 2017 compared with February 2016, all main retail sectors, except petrol stations saw an increase in the quantity bought (volume) while all sectors saw an increase in the amount spent (value). The largest contribution in both the quantity bought and amount spent came from non-store retailing.
However because of the week December and January data the trend remains for a fading of the year on year growth.
The underlying pattern as suggested by the 3 month on 3 month movement decreased by 1.4% for the second month in a row; the largest decrease since March 2010 and only the second fall since December 2013.
Actually we get a confirmation of some of the themes of this blog. For a start in something which central bankers and inflationistas will overlook higher inflation leads to lower consumption. The higher oil price has led to less petrol consumption.
the largest contribution came from petrol stations, where year-on-year average prices rose by 18.7%……..The underlying trend suggests that rising petrol prices in particular have had a negative effect on the overall quantity of goods bought over the last three months.
Over time I expect this to feed into retail sales as you see that prices are rising overall as the higher oil price feeds through.
Average store prices (including fuel) increased by 2.8% on the year, the largest growth since March 2012;
So sadly I expect the retail sales growth to fade away as higher inflation erodes real wages. Also whilst it is only one sector we have yet another inflation measure (2.8% here) running higher than the official one, how many do we need?
Royal Statistical Society
I am pleased that it has expressed its misgivings about the new UK inflation infrastructure in a letter to The Times today. Here are the main points.
For several years, the Royal Statistical Society (RSS) has been advocating the introduction of a proper household inflation index. We believe the answer lies in the proposed Household Costs Index (HCI) that is currently being developed by the Office for National Statistics, with expert input from some RSS members.
Paul Johnson is right that government should not be cynical in its use of different inflation measures. We would also argue, however, that the government should use the appropriate inflation index for the job at hand. CPIH makes sense as an index for economic policy matters (such as potentially interest rate setting by the Bank of England) but it is HCI that, once fully developed and proven, should be used for uprating purposes and for assessing real incomes in the UK.
Good for them! I have spent quite some time taking my arguments to the RSS and am pleased that the message is at least partly not only being received but also transmitted. My only quibble would be that CPIH results from national accounts methodology and not economic principles.
Ben spoke at Imperial College earlier and as ever his Forward Guidance radar misfired.
We may already be seeing the impact of that squeeze on retail spending, which in real terms fell quite sharply around the turn of the year.
Some felt it was a hint for the 9:30 numbers but if it was Ben had misread them. He gives some more Forward Guidance by telling us the UK Pound £ may go up or down!
Either the currency market is too pessimistic, in which case sterling’s depreciation is likely to be reversed over time. Or it’s not, in which case the costs of exporting will eventually go up.
Actually after the last Forward Guidance debacle Ben has either completely lost the plot or has developed a sense of humour as whilst not in the speech this was being widely reported..
It’s quite possible we could see rates go up in the UK
Can see scenarios where BOE could raise rates ( h/t FXStreet )
Another issue is that Ben Broadbent seems to follow financial markets and assume they are correct. If you recall when I was on BBC Radio 4’s MoneyBox last September the ex-Bank of England economist Tony Yates repeated the same mantra. They seem to have forgotten that they should not be puppets they should have their own views.
This week has had a ying and yang to it on UK economic news. The public finance and retail sales numbers remain good but the Sword of Damocles already beginning to swing is higher inflation especially via its effect on real wages. This will affect retail sales as 2017 progresses and that will affect the public finances too albeit there are also gains for the latter. Yet the establishment continues with its objective of inflation measures that ignore as much inflation as possible. Does anybody actually believe this new Forward Guidance from the Bank of England? After all back in 2011 they ignored inflation which went above 5% with disastrous consequences for real wages.
Me on Official Tip-TV