Sterling drops to lowest level this year
The big news over the past month was the Bank of England delaying raising interest rates, triggering a sharp fall in the value of sterling to the lowest levels this year. The pound has slumped by almost 6c against the dollar, as traders in the City bet against Threadneedle Street raising the cost of borrowing as much as previously thought over the course of this year. While the economy was knocked off course by snow earlier this year, the fading inflationary impact from the fall in the pound straight after the Brexit vote may also have deterred the Bank. The pound has fallen 4% over the past month.
Easing trade tensions help drive shares higher
The easing of tensions between China and the US over Donald Trump’s proposed trade tariffs, as well as the weaker pound, provided a fillip for the FTSE 100 over the course of the past month. Most of the firms in the index of top UK companies make substantial profits in dollars and export around the globe, meaning a weak pound helps boost their earnings. Meanwhile, the US said it had put “on hold” its proposed tariffs on Chinese imports, although Trump later quelled speculation a deal between Washington and Beijing had been struck. Fears over the creation of a new Italian government also threatened to unsettle markets. The FTSE 100 has risen almost 5% over the course of the past month.
Better than expected
Lower airfares trigger surprise fall for inflation
Inflation unexpectedly fell further in April, as lower airfares provided some relief for cash-strapped Britons. The consumer price index (CPI) fell to 2.4%, according to the Office for National Statistics, against economists’ forecasts for inflation to remain unchanged from the previous month at 2.5%. Lower airfares provide the biggest downward contribution, although the ONS admitted the early timing for Easter this year could have influenced the reading. Observers said the rate would probably rise in coming months as rising global oil prices drive up the petrol costs for British motorists.
Worse than expected
Trade deficit unexpectedly widens
Thanks to a drop in imports of ships and aircraft from non-EU countries, Britain’s trade deficit narrowed in March. The difference between what the country brings in and sells abroad in terms of goods and services fell by £700m to £6.9bn in the three months to March 2018. However, when excluding services, Britain’s trade balance grew to £12.3bn, which was worse than analysts’ forecasts for a deficit of £11.3bn. The figures are likely to disappoint Brexit supporters looking for greater support for the economy from world trade.
Worse than expected
Activity fails to bounce back from snow disruption
The British economy showed signs of having failed to bounce back from disruption triggered by the snow earlier in the year, with key barometers of business activity in the UK showing a muted recovery. The reading on the IHS Markit/Cips all sector purchasing managers’ index rose to 53.2 in April, up from 52.5 in March when the “beast from the east” caused diggers and cranes to fall idle and shoppers to stay home. While that showed some progress, it was below the consensus estimate of 53.7 predicted by City economists on a gauge where 50 splits the difference between growth and contraction.
Meets expectations
Employment rate hits fresh record high
Despite the slowest growth for the economy in five years, Britain’s employment rate reached a fresh record in the first three months of the year, as the UK added 197,000 more jobs to the workforce. However, there was a mixed picture for wages. Growth in total pay was up by 2.6% on a year earlier, which was slower than the 2.8% recorded in the three months to February. Excluding bonuses, earnings were up by 2.9% from the 2.8% annual increase reported the previous month. Both readings met forecasts made by City economists, while some experts said pay should gradually begin rising amid the lowest levels of unemployment since the mid 1970s.
Better than expected
Retail sales come in from the cold
Having come under significant pressure from the cold snap earlier this year, retailers enjoyed the biggest jump in sales for 18 months during April. Shoppers hit the high street again as the sun came out, helping to drive up sales by 1.6% on the volumes seen in March, according to the latest figures from the ONS. The increase comfortably beat City forecasts for a rebound of 0.7%, stoking speculation that the economy may be stronger than at first feared. The figures will cheer retailers going through a tough patch as British consumers come under pressure from rising prices, including Marks & Spencer, which announced plans to close 100 stores by 2022.
Better than expected
Financial year begins with good news for Hammond
Philip Hammond was handed good news from the government borrowing figures in the first month of the new financial year, as the budget deficit for April came in well below forecasts, boosted by stronger tax receipts and reduced spending. The figures showed public sector net borrowing, excluding state-owned banks, was £7.8bn last month, versus an estimate of £8.6bn. The government’s annual spending shortfall for the last financial year to the end of March was also revised down by almost £2bn to £40.5bn, with the figures raising the prospect of the chancellor moving to loosen the purse strings at the budget later this year.
Worse than expected
House price growth continues to slow
Uncertainty triggered by Brexit, coupled with tax changes and consumers coming under pressure from inflation and weak wage growth have played havoc with the housing market since the referendum. Over the past month, the closely watched Royal Institution of Chartered Surveyors (Rics) gauge of house prices dropped to the lowest level since 2012. The index, which measures the balance of surveyors expecting price rises fell to -8 in April from zero in March. That was worse than a Reuters poll of economists for a reading of -1.
And another thing we’ve learned this month … Brexit has left UK households £900 worse off
British households are more than £900 worse off since the Brexit vote, according to the governor of the Bank of England, who also warned the economy has failed to grow as much as forecast before the referendum. Speaking before MPs on the Treasury select committee, Mark Carney said the economy was as much as 2% smaller than forecast before the Brexit vote. “Over the course of the last year and a half, there has been an impact [from Brexit] relative to what we would’ve expected – even with some pretty good tailwinds at the back of this economy,” he said. His comments come after the “beast from the east”, as well as a slowdown for consumer spending triggered by Brexit, led to a sharp fall for GDP growth during the first quarter of 2018.
