Today the focus is on the UK as we have a continuation of the time of the month where we get economic data plus some Bank of England news. We can start with what was a good Retail Sales release this morning.
Retail sales volumes (quantity bought) were estimated to be flat (0.0%) in February 2024, following an increase of 3.6% in January 2024 (revised from an increase of 3.4%).
In itself flatlining is nothing to shout about but it is 0.2% higher than we thought due to the January revision and after the January surge there was the risk of a fall. As a reminder I think that the wild swings between December and January where we had a collapse then a surge show that the seasonal adjustments are in trouble. If we look at the detailed breakdown we see this.
Sales volumes in clothing and department stores grew because of new collections but falls in food stores and fuel retailers offset this growth. Meanwhile online sales increased, particularly for clothing retailers, as wet weather affected footfall.
Tucked away in there was another reason these were welcome numbers as some were ready to blame that familiar scapegoat that is the weather.
The Met Office climate summaries reported a mild but wet February 2024 with generally unsettled weather. Southern England received 239% of its average rainfall and in this area, it was the wettest February on record (from 1836).
But one of the areas providing a boost was clothing.
Most of the increase within non-food stores was because of a monthly rise of 1.7% within clothing stores, following recent monthly falls. Retailers reported that new collections and promotions contributed to this rise.
Backed up by department stores.
Sales volumes at department stores and other non-food stores also grew over the month (by 1.6% and 0.4%, respectively).
On the other side of the coin were a couple of areas blaming the rain.
However, household goods stores fell by 1.0% with respondents reporting the economic climate and poor weather as factors that contributed to the fall…….Food stores sales volumes fell by 0.3% over the month following January’s recovery from December’s record fall in 2023. Respondents again reported poor weather leading to a reduction in footfall,
Plus fuel sales.
Automotive fuel sales volumes fell by 1.3% over the month to February 2024 as fuel prices increased slightly.
I do wonder if they should have an adjustment these days for the impact of hybrids and electric vehicles although it would not be easy to measure. The public chargers of which there are several near me should be counted.
If we switch to online it does hint that the rain may have boosted it.
The amount spent online, known as online spending values, rose by 2.1% over the month to February 2024 (2.2% over the year). This monthly rise was the largest since July 2023 when shoppers switched to online shopping because of poor weather and increased promotions.
The Bank of England
One noticeable move yesterday was that those arguing for another interest-rate rise folded.
At its meeting ending on 20 March 2024, the MPC voted by a majority of 8–1 to maintain Bank Rate at 5.25%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%.
So Jonathan Haskel and Catherine Mann did the equivalent of waking up and smelling the economic coffee. Also I note that the Governor has given some hints to the Financial Times this morning.
The Bank of England governor has signalled markets are right to expect more than one interest rate cut this year, saying he is increasingly confident inflation is heading towards target.
Such interviews are part of why I describe it as the Bank of England’s house journal. If we look at what he has to say then in fact it may well even be below target when we get the April numbers. Let us hope that he has finally realised that wages are a lagging indicator responding mostly to past inflation.
Andrew Bailey told the Financial Times that rate cuts were “in play” at future meetings of the BoE Monetary Policy Committee amid signs that tighter policy had quelled the risk of a wage-price spiral. “It’s like the Sherlock Holmes dog that doesn’t bark. If the second-round effects don’t come through, that’s good because monetary policy has done its job,” he said.
Let me illustrate how different that view is from his words on the 17th of May last year.
As Covid hit, UK labour supply growth came to an abrupt halt. The size of the workforce declined by more than 130,000 people, or nearly ½%, from the three months to December 2019 to the three months to January this year.
The Bank of England went full on with this type of analysis but it has crumbled in its own terms since before we even get to my critique of it being a lagging indicator. What I mean by that is the upwards revisions in population estimates have obvious implications for the size of the workforce.Plus the problems with the Labour Force Survey highlight the dangers of relying too much on its detail plus reminding is that the tax (HMRC) figures suggest a workforce some one million larger.
In some ways this was the most upbeat part of the interview and thus by implication a critique of his own past statements.
Strikingly, the UK was “effectively disinflating at full employment”, Bailey added, underscoring how unusual this situation was, given that battles with inflation have typically been won at the cost of higher unemployment.
That is something which leads directly into his hints on interest-rates.
But he added: “The fact that we have a curve that has cuts in it for the year as a whole is not unreasonable to me.” Asked if all the upcoming MPC meetings were live when it comes to possible policy moves, he confirmed: “All our meetings are in play. We take a fresh decision every time.”
There was a change of emphasis here too.
Bailey insisted that he did not need to see inflation drop to 2 per cent, the BoE’s target level, before cutting rates, but he said the key point was “you need to see you are on the way”.
Even more so here.
Similarly, policymakers should not wait for annual growth in wages and services prices to halve from current levels exceeding 6 per cent. “You need to have confidence that it’s heading in that direction,” he said.
Financial Markets
A clear message has been sent by the UK FTSE 100 which has seen a strong rally at the time of typing this. At 7943 it is up 0.7% today and that is on top of the 2% or so yesterday. Of course some of this was due to the US Federal Reserve announcements giving us a general theme of central banks having equity friendly policies. That has been matched to some extent by the UK ten-year yield nudging below 4%.
At the same time the picture has been muddied by the return of King Dollar pushing the UK Pound £ below US $1.26. The Dollar strength is perhaps highlighted more by this.
INDIAN RUPEE ENDS AT RECORD LOW OF 83.43 AGAINST THE U.S. DOLLAR ( @Deltaone)
Comment
Regular readers will be aware that I have argued that after taking much too long to raise interest-rates the Bank of England has been holding them as much as a PR exercise as to do any economic good. So I welcome the change of emphasis even though we have no action yet. A fair bit of my argument comes from something I was pleased to see in the Minutes.
The annual growth rate of aggregate sterling broad money had decreased from -0.3% in December to -1.6% in January, driven by volatility in the holdings of the non-intermediate other financial corporations sector, but had remained slightly above the previous six-month average of -1.8%.
That implies quite a crunch in the economy ( strictly nominal demand) at the policy horizon some 2 years ahead. Or if you prefer interest-rates are too high. Also let me add something extra missing from the FT interview. With money supply growth where it is I feel it is madness to further depress it with QT bond sales. Stopping that would be one way of beginning to reverse course.
It would not be an FT interview with the Governor without an effort to win the Order of the Brown Nose.
Bailey, who had moved back to the BoE after a politically fraught spell as head of the Financial Conduct Authority, won plaudits for his rapid response and cool handling of the Covid-related conflagration.
As you can see they cannot avoid the issues ( which included a dirty protest) at the FCA. But anyway even they soon gave up.
But the acclaim quickly subsided after the lockdowns ended and it became clear the UK was facing a brewing inflation threat and a cost of living crisis.
The official line kindly confirms my theme that the higher up you are the less responsible you become.
Asked about those forecasting failures, Bailey insisted that “everybody” had got the scale of the inflationary upsurge wrong.
Not everyone because on May 29th 2020 when according to the FT the Governor was winning “plaudits” I was echoing BB King.
Hey, Mr. President
All your congressmen too
You got me frustrated
And I don’t know what to do
I’m trying to make a living
I can’t save a cent
It takes all of my money
Just to eat and pay my rentI got the blues
Got those inflation blues
Notayesmanseconomics's Blog 
Both January & February had an extra working day, often an extra day without pay, if paid monthly.
They always use bank holidays, specifically extra bank holidays, like jubilees etc. to excuse poor performance.
Weasels lying by omission.
Hi therrawbuzzin
That is a fair point which I had not thought of. How did they treat the Leap Day? It should be allowed for but I am not absolutely sure.
They don’t really have to treat it, just noting it would be more honest.
He was so good, let’s play it:
B.B. King – Inflation Blues (Nick’s ’83) (youtube.com)
My personal favourite, Outside Help:
B.B. King – Outside Help (youtube.com)
Nothing wrong with some Friday night music. I see that BBC Four have gone with Roy Orbison.
In case anyone needed to know who is behind the destruction of the west,join the dots to understand what is going on,to explain the insane policies our government are pursuing, the way our society and way of life is being attacked and systematically destroyed, watch this video,the flow chart should be printed and kept to show those who think it is just naive,incompetent politicians.
No! No! Kevin
We’re tinfoil hat conspiracy nutters; the elites love us & act only for our benefit.
15 min cities will be nice! (I wonder what the one next to us is like, but that’s idle speculation as it is for our own good that we are not allowed to find out for ourselves.
Thank you Bill Gates et al, you have given me everything I could want. Who in hell wants freedom? WITH IT COMES DANGER!! (or, worse still, INCONVENIENCE!!!)
15 minute cities or, as they used to be called: cities.
Seriously.
When & where was the last city you could cross, at ground level, in 15 minutes, never mind 15mins on foot?
Vatican City?
The City of London?
I think technically the old City of London still exists.
But you are basically correct, no modern city can be crossed in 15 minutes
Remember where you first read that it would be Labour who would ditch the triple lock?
Fresh blow for pensioners as Keir Starmer delivers triple lock bombshell (msn.com)
Even if the Tories commit to the triple lock it doesn’t look like it will save them.
As a matter of interest how many pensioners are left over 67 ?
Copilot
In the United Kingdom, the population of people aged 65 and above has been steadily increasing. As of the most recent data:
12 million people who have paid for their pension.
Women, “We want compensation for equality!!!”
yet another of my conspiracy theories proven.and to think the people are going to vote Labour in their droves,turkeys don’t vote for Christmas, I’d say they’ve got a lot more brains than the average voter.
The UK is a hedge fund masquerading as a country.
( lifted from another channel but I feel appropriate )
forbin
have you watched the video Forbin?
Great blog as usual, Shaun.
Today was the funeral for Brian Mulroney, the greatest Canadian Prime Minister in my lifetime, and I am 72 years old. I went to see his body lying in state in the Sir John A. Macdonald Building in Ottawa on Wednesday. This was supposed to end at 1 p.m. and I arrived so close to the hour and there was such a large crowd waiting to get in I thought I wouldn’t make it. However, the Mulroney family were very classy. They didn’t want to turn anyone away. I shook hands with everyone at close to 2 p.m. and there were still people waiting in line behind me. I spoke some very rudimentary Serbian phrases to Mr. Mulroney’s widow, Mila, and his daughter Caroline. (She is the President of the Treasury Board in Ontario now, the number two economics minister in the Ford government, and will be giving the eulogy for her father tomorrow.) I didn’t do well, but they both responded to me in Serbian and seemed pleased that I had made the effort. All of the Mulroney children were there and Mark Mulroney’s wife was also in the line.
None of the tributes I have seen regarding Mulroney make any reference to his government making the Bank of Canada the third country in the world with inflation targets, and the first in the Northern Hemisphere. It probably is related to the very different regime the initial inflation control agreement signed by his Finance Minister Michael Wilson and the Governor of the Bank of Canada, John Crow, set up from what we have now. The two men set up inflation reduction targets of 3%, 2½% and 2%, with 2% as the target rate for the end of 1995, with lower rates likely to follow, until an undefined lower rate consistent with price stability was attained. The defeat of the Progressive Conservative government in 1993 led to the first renewal agreement being pushed forward from 1995 to 1993. The 2% target rate was maintained for the duration of that agreement, and has not been changed since. Indeed, it has become something of an international standard. In his memoirs, Brian Mulroney, although very proud of having introduced inflation targeting, does not seem to be disappointed that the lower long-term target rate was abandoned. This appears to have been more the dream of Governor Crow, as he says in his own recollections. The Mulroney team was prepared to go with a target rate of 3%, and he bargained them down. Nevertheless, Mulroney did endorse, at great risk to his own party’s fortunes, the agreement that was made. Today, unfortunately, Canada has become so badly indebted that reasonable people can agree to disagree on whether a lower target rate of inflation than 2% is even feasible any more. Only the People’s Party of Canada, which has at best about 5-6% public support, still favours a target rate of inflation that is consistent with price stability.