Today has seen a raft of news on the state of play in the UK economy and let us start with what the consumer has been up to. The British Retail Consortium has told us this.
August provided a welcome pick-up in retail sales across channels, with Non-Food returning to growth as shoppers’ attentions turned to homewares, autumn clothing ranges and the new school term.
The BBC gives us a breakdown of the data.
The British Retail Consortium, working with consultancy KPMG, said like-for-like sales rose 1.3% in August, against a 0.9% fall for the same month in 2016.
Actually total sales rose by 2.4% which suggests that there was an opening of retail stores in some form which seems strange with the switch to online ( “from strength to strength”) that is happening. Also there was a dichotomy between the views of consumers about the future and the BRC. Here is the consumer view.
Shopper confidence has been building. 23 per cent expect to be financially better off over the next 12 months, compared with 20 per cent in the election month of June.
So an improvement albeit a small one whereas the BRC itself is much more downbeat.
Purchasing decisions are very much dictated by a shrinking pool of discretionary consumer spend, with the amount of money in people’s pockets set to be dented by inflation and statutory rises in employee pension contributions in a few months’ time.
Data from Barclaycard which claims to cover nearly half of UK credit and debit card transactions put a different spin on things.
Consumer spending growth slowed to 2.9 per cent in August, compared to a 2017 average of 3.8 per cent, as consumers rowed back across the board.
So they have seen growth but maybe not much if we allow for inflation and in the detail I noted that we seem to feel we need a drink!
Pub growth fell to single digits for only the second time this year (9.2 per cent), and spend on cinemas and event tickets flatlined (0.4 per cent) after the 24.3 per cent boost seen in July.
Also I saw this earlier and of course with a lag we tend to follow the United States in such things.
US box office -35 per cent in August, worst in 20 yrs raises Q’s about the future of cinema in the age of digital streaming!? ( h/t @CompoundIncome )
This have hit a decidedly rough patch however which we have noted by the proliferation of scrappage schemes which add to the definition of “price cuts” in my financial lexicon for these times. From the SMMT.
New car registrations fall -6.4% in August to 76,433……Year-to-date market holds steady, down -2.4%, with 1.64 million cars joining British roads in 2017.
So bad news for sales however not so much for manufacturing as we mostly import the cars we lease. Europe’s trade body gave us an idea of how much last September.
The other way round, the EU represents 81% of the UK’s motor vehicle import volume, worth €44.7 billion
So a small drain for UK manufacturers and a larger one for foreign manufacturers so ironically if we continue to export as usual a possible improvement in the trade figures.
UK business surveys
The Markit PMI for services this morning had some odd combinations in it as shown below.
new order volumes increased at the second slowest rate since September 2016….. fragile business confidence
So a slowing but one which caused backlogs and increased employment?
This was highlighted by the steepest rise in backlogs of work since July 2015. Service providers responded to rising workloads and pressures on operating capacity by recruiting additional staff in August.
We have found employment to be a reasonably reliable forward indicator over the last few years or so meaning that the down reported could be an “unexpected” up.
If we move to manufacturing nearly everyone except the official figures are telling us that things are on the up.
All five of the PMI components – output, new orders, employment, suppliers’ delivery times and stocks of purchases – were consistent with a stronger performance for the manufacturing industry during August.
There was also this from another source earlier.
Britain’s manufacturers are enjoying buoyant conditions on the back of export markets going from strength to strength according to a major survey published today by EEF , the manufacturers’ organisation and accountancy and business advisory firm BDO LLP…… Output and orders bounce back to historic highs.
The picture is completed by a weak period for construction and particularly infrastructure spending from the PMI there. Maybe the election was an influence on the public-sector but we cannot say that for ever! However the overall picture suggested is of steady as she goes.
the latest two months’ data put the economy on course for another 0.3% expansion in the third quarter
What about flows of money?
This morning has brought news that suggests at least one company sees UK businesses attractive at current exchange rates. From the Financial Times.
Schneider Electric will contribute its own software division to Aveva in exchange for new shares in the UK company. Schneider will own 60 per cent of the enlarged company’s stock, valued at approximately £1.7bn. Existing Aveva shareholders will own the remaining 40 per cent.
However this morning we got official data saying that in the second quarter foreign acquisitions of UK companies had fallen! One area where there may be a change if ( as often happens) similar investors fall into line was this announced by the Norwegian sovereign wealth fund.
In future, the benchmark index for the bond portfolio should consist of nominal government bonds issued in dollars, euros and pounds……….The benchmark index for bonds currently consists of 23 currencies. Our recommendation is that the number of currencies in the bond index is reduced.
These things take a long time to happen usually and some emerging bond markets will be hit but it seems that there will be a purchase of UK bonds ( as well as Euro and US Treasuries) which will be mostly a currency play.
On the surface we see that there is an element of “same as it ever was” as the UK economy continues to grow but slowly. However underneath a fair bit seems to be changing as we see more and more reports of UK manufacturing doing well albeit that we wait to see that reflected in the official data. I have to confess I am unclear why services output is falling as backlogs and employment both rise!
The danger remains of a lower UK Pound £ pushing inflation higher but the main burst of that is fading now and if other sovereign wealth funds match Norway it may see some investing flows. On the other side of the coin even Markit seems to be trolling the Bank of England these days.
the overall level of the PMI remains more consistent with policymakers erring towards stimulus rather than hiking interest rates, suggesting the doves will continue to outnumber the hawks.