The saturday economist 23rd june

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In this issue : Page No. Saturday June 23rd 2012
Forward on:
The week in review 2

Retail Price Inﬂation - May 3

Unemployment data - April .May 4

Retail Sales - May 5

MPC Minutes 6

Retweet this Oil Price Watch 7
John Ashcroft The Saturday
Latest Economic Indicators 8 Economist is Chief Executive of
pro.manchester, a director of
Marketing Manchester, a member
of the Greater Manchester
Chamber of Commerce, the
AGMA Business Leadership

miss Council and a visiting professor at
’t MMU Business School
Don specialising in Economics,
Corporate Strategy and Business
Modelling.

Education : London School of
Economics London Business
John Ashcroft.co.uk School with a PhD in economics
from MMU.
Saturday, 23 June 12



Saturday June 23rd 2012
The Week in Review - inflation falls, unemployment sends mixed
signals and retail sales rally in May. The MPC minutes suggest
more QE is on the way.

Good news on inflation as the headline rate CPI fell to 2.8% in May down from 3.1% in
April. In other measures the RPI and RPIX also fell to 3.1% from 3.5%.

World trade is slowing with some respite to manufacturing and commodity prices. Oil
prices Brent Crude basis in dollar terms fell by 9% in the month down by 5% year on
year, this helped UK inflation. Brent Crude closed at $95 per barrel at the end of this
week pushing prices lower - one would expect.

Unemployment sends mixed messages as the claimant count increased slightly in May
by 8,100 but the wider LFS count for the three months to April suggested Inflation CPI basis fell to 2.8% in May
unemployment fell. Confusing - well a little but the figures are consistent with an
economy stalling with no evident growth. Our forecasts for unemployment are little
changed on the year.

Retail sales rallied in May with volumes up by 2.4% and values increased by 3.3%.
Internet sales surged by almost 22%. On line food sales were up by 34%.

The minutes of the monetary policy committee in June were released this month. Base
rates were on hold but more QE was narrowly avoided with a 5-4 vote against. Martin
Weale won’t hold out for long, more QE may follow in July.

Rates are on hold but more QE is on the way

John Ashcroft.co.uk Page 2




Retail Price Inflation - May

Inflation CPI basis slowed to 2.8% in May down from 3% in April. The
largest downward pressures to the change in CPI annual inflation
between April and May came from motor fuels and food & non-alcoholic
beverages.

The rate of RPI and RPIX inflation fell to 3.1% from 3.5%, The largest
downward pressures to the change in RPI annual inflation between April
and May came from petrol & oil and food.

World trade is slowing with some respite to manufacturing and commodity
prices. Oil prices Brent Crude basis in dollar terms fell by 9% in the month Inflation CPI basis fell to 2.8% in May
down by 5% year on year.

For the Bank of England and the MPC the figures represent good news in
pursuit of the inflation target. Inflation is likely to fall towards the 2% level
in the final quarter of the year. For those more fearful of deflation, the
news casts more long shadows and black clouds over Threadneedle
Street.

RPI inflation fell to 3.1%.





Unemployment data for April and May Saturday June 23rd 2012

Unemployment defined as the number of people claiming Jobseekers’ Allowance,
increased by 8,100 in May to 1,599.3 thousand from a revised 1,591.2 thousand in
April. The claimant count rate of unemployment was unchanged at 4.9%.

According to the wider LFS definition, unemployment actually fell. In the three
months to April, there were 2.61 million unemployed, down 51,000 on the quarter.
The unemployment rate was 8.2% down by 0.2%.

By the end of March, there were 31.9 million workforce jobs compared to 31.3
million one year ago. There were 29.3 million people in public and private sector
employment compared to 29.2 million last year. Private sector gains of 320,000
were offsetting the loss of 278,000 public sector jobs. Within the private sector, self
employment has increased by almost 200,000 in the twelve months. Claimant Count increased slightly in May

What does it all mean? Well using the claimant count figures as the best guide to
overall levels of activity, the economy is stalling. Unemployment in the first five
months of the year has increased but by just over 3,000. Jobs are being lost in the
public sector and gains in the private sector are being supported by a big rise in
DIY self employment. The pattern is consistent with an economy that is stalling.

Average Earnings in April were 1.8% compared to 2% in April last year. Earnings
may not be rising but inflation is falling. We expect earnings to rise to 2% by the
end of the year but this may still leave real earnings adjusted for inflation under
pressure.

The economy is stalling but no severe slow down





Retail Sales - May
Retail sales volumes in May 2012 are estimated to have increased by 2.4 per cent
compared with May 2011 and retail sales values in May increased by 3.3 per cent.

Excluding sales of automotive fuel, sales volumes increased by 3%, household
goods sales in the month increased by 5%.

The total amount spent in the retail sector in May is estimated at £26.4 billion, non-
seasonally adjusted, up from £26.0 billion in April 2012 and £25.6 billion in May
2011.

The average weekly value for Internet sales is estimated at £510.9 million and
increase of 21.6%. The proportion of retail sales made via the Internet now stands
at 8.8 per cent. Food sales on line increased by 34%. Retail Sales up by 2.4% in May

What does this all mean? Well compared to the long run average - retail sales are
well below the trend rate of growth of 3.4%. In the ﬁrst quarter of the year, retail
sales volumes increased by 1.6% and in the second quarter will be around 1.5% at
best.

For the rest of the year, volumes may well increase as inﬂation falls, petrol prices
ease and earnings rally slightly.

Our forecast for the full year retail sales volume growth is up slightly to 1.5%.

Our forecast for the full year just 1.5%





Minutes of the MPC meeting
The minutes of the MPC June meeting were released today. The Committee voted
to keep rates on hold but more water on the drowning seems likely with another
dose of QE on the way as early as next month. It was a near run thing in June as
the minutes reveal :

Proposal : The Bank of England should maintain the stock of asset purchases at
£325 billion. Five members of the Committee (Charles Bean, Paul Tucker, Ben
Broadbent, Spencer Dale and Martin Weale) voted in favour of the proposition.

Four members of the Committee voted against the proposition. The Governor,
David Miles and Adam Posen preferred to increase the size of the asset purchase
programme by £50 billion to a total of £375 billion. Paul Fisher preferred to
increase the size of the asset purchase programme by £25 billion to a total of £350 Minutes of the MPC meeting rates on hold
billion.

Martin Weale is unlikely to hold out for long. July could see more QE. Can anyone
explain what this policy on Planet ZIRP really achieves? Not if you read This
Discussion Paper from the Saturday Economist. What’s wrong with QE and the
Asset Purchase Facility.

But the push for more QE is a narrow thing




Oil Price Watch ......

150 Saturday June 23rd 2012
Oil brent crude closed at $95.15
last week
120

90
Oil Price Brent Crude $ Qtr Data

$ I II III IV
60
2010 76.35 78.37 77.49 87.28

2011 104.79 116.57 113.57 109.16
30
2012 118.83 109.00 110.00 115.00
Forecasts
0 Our forecasts more bullish
2004 2005 2006 2007 2008 2009 2010 2011 2012 than the World Bank $107
this year.





Latest Economic Indicators Saturday June 23rd 2012

Indicator Period Latest Notes, next release Source
Inflation CPI May 2.8% ONS
Inflation RPI May 3.1% .. ONS
Inflation RPIX May 3.1% .. ONS
Earnings April 1.8% ONS
Retail Sales volume May 2.0% ONS
Retail Sales value May 3.3% ONS
Unemployment April 2.62 LFS Million trailing 3 months ONS
Unemployment % April 8.2% LFS trailing 3 month ONS
Claimant count May 1.59m Million ONS
PPIs output May 2.8% Manufacturing prices (output) ONS
PPIs input May 0.1% Manufacturing prices ( input) ONS
GDP growth Q1 2012 -0.3% ONS
Manufacturing April -0.9% year on year growth ONS
ONS : Office for National Statistics, LFS : Labour Force Survey




The Saturday Economist

The Saturday Economist is a round up of the week’s economics news for the UK June
published on the web site johnashcroft.co.uk. The information is also available as
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The saturday economist 23rd june

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