This morning brings us the first official data covering December and in particular the retail sector and how it performed over Christmas. So after yesterday’s rays of sunshine which boosted the recorded performance of the telecoms sector over the past decade or so we wonder if a winter chill has arrived today? But before we get there we have much to look at and the opening salvo is fired by this.
GBP back to pre-Brexit levels against the USD. Interesting. ( @ericlonners )
To be more specific it has risen over US $1.39 this morning which does mark a change in UK economic conditions. We are now 15 cents higher than we were a year ago which means that we have switched from the boost to inflation from the past fall to a brake on it from the new higher level. I note he sent this to various journalists perhaps mulling how so many of them told us the only way was down for the UK Pound or perhaps noting the disappearance of polls asking if we are going to parity with the US Dollar? So lesson one is to get very nervous if places like the Financial Times and Wall Street Journal go bullish on the UK Pound £!
But before I move on an excellent question was asked.
So will Apple and Unilever be dropping their prices then, Eric? ( @AndrewaStuart )
After all they did raise prices when the UK Pound £ fell.
There is less impact here than you might think. There has been an overall tightening of monetary policy but only by the equivalent of a 0.5% Bank Rate rise as the effective or trade-weighted index has risen from 77 to 79. If you are wondering where the rise against the US Dollar has gone well some of it has been offset by the fall against the Euro where the 1.19+ of last April is 1.13 or so now.
This is something which economists who look at the UK economy have dreamed of in the past and today’s test if you will is to see if any mention it?! What we wanted was a rally against the US Dollar to reduce inflation via its role as the base for commodity prices and a fall against the Euro to improve our price competitiveness for trade. In essence we have had that over the past year or so albeit after the fall in the UK Pound £ after the EU Leave referendum.
Here we do not quite get what you might assume from all the media reports of rising bond yields or from the Professor ( from Glasgow university I think) who was not challenged on BBC News 24 last night when he claimed the UK could borrow for nothing. Whilst it is hardly exorbitant 1.34% is not the “nothing” that you might argue for Germany or especially Switzerland. As to the change in yields they are lower than a year ago because the real change in world bond markets happened early last September when the UK ten-year Gilt yield was below 1%. So since then monetary policy has tightened via this route as well.
Wealth and House Prices
After offering views likely to upset the digestion of Bank of England Governor Mark Carney let me move onto a subject to make him smile. From the Financial Times today.
The value of all the homes in the UK has risen by more than third in the past decade, to £7.14tn, with older homeowners and landlords winning the biggest share of the new wealth as young people continue to be priced out of the market. After several flat years of growth following the financial crisis, the value of the UK’s property market began picking up strongly after 2013, according to analysis by Savills, the estate agent.
Governor Carney will grin like a Cheshire Cat and perhaps order his favourite Martini as he notes it coincides with his watch.
After several flat years of growth following the financial crisis, the value of the UK’s property market began picking up strongly after 2013, according to analysis by Savills, the estate agent.
For newer readers please look up my posts on the Funding for Lending Scheme and its impact. Also there is a signal of a problem in the UK economy which is rather familiar.
Landlords more than doubled the value of their equity from £600bn in 2007 to £1.3tn in 2017.
I have nothing against individual landlords trying to make some money but I do have criticisms for the way that so much UK economic effort is incentivised to flow into this area and arena.
Also in a week where the economics editor of the Financial Times has railed against statistical fake news there are a couple of issues here. Firstly there is the use of marginal prices ( current house prices) to value a stock as for example you would never get those prices if you actually tried to sell the lot. Next there is the issue of pretty much copy and pasting a view on the housing position from an estate agent and turning a blind eye to the moral hazard involved. On those issues let us note they end with a stock of this nature compared to a flow which is government income.
As a type of critique let me point out this from the FT’s twitter feed.
The share of UK families’ budgets devoted to housing costs has more than doubled over the past 60 years.
This was likely to be an awkward Christmas season for two reasons. Over the year we had seen falling real wages slowly erode UK retail sales growth that had been particularly strong at the end of 2016. Also some of the spending has shifted to November via the advent of what is called Black Friday which only makes an already erratic series harder to analyse. So we are left with this.
In the latest three months the quantity bought in retail sales increased by 0.4% compared with the previous three months; while the underlying pattern remains one of growth, this is the weakest quarterly growth since the decline of 1.2% in Quarter 1 (Jan to Mar) 2017……..In December 2017, the quantity bought increased by 1.4% when compared with December 2016, with positive contributions from all stores except food stores.
So we have some growth but not a lot of it and we had a curiosity because we had been told by individual company reports that it had been food sales which had saved Christmas yet on the collective level we see the opposite. Next we face the prospect that as winter moves into spring the numbers may be okay as we note that it was a rough start to 2017 for retail sales.
As ever we have much to consider. Let me start with the end of last year where the fourth quarter looked good but retail sales are not helping much and there was the shut down of the Forties pipeline. Thus it seems set to be at the weaker end of expectations followed by a bounce back in the first quarter as the pipeline re-opens all other things being equal.
Meanwhile some and in particular those who invested/punted/bought houses near to my locale may not be enjoying things that much. From Property Industry Eye.
The foreign investor market in London is on its knees – with ‘hundreds’ of buyers of homes purchased off-plan over the last four years nursing huge losses.
The problem, says one large London agent, has been ‘massively under-reported’ by the media.
With values of such properties having dropped like a stone, some investors are unable to complete on their purchases, with the developers taking possession.
Others are having to sell at almost a one-third loss to avoid having to hand back distressed properties to developers, and then risking legal action and greater losses.
Yet some still seem to be taking the blue pills. From Bloomberg.
Malaysia’s Permodalan Nasional Bhd will buy a stake in London’s Battersea Power Station building where Apple Inc. plan to occupy a new U.K. headquarters.
The sovereign wealth fund will own the building with the Employees Provident Fund in a deal which values the power station building at about 1.6 billion pounds ($2.2 billion), Battersea Power Station Development Co. said in a statement Thursday.
Oh and someone seems to have missed the rally in the £ completely.