Status quo on Threadneedle Street
There was no change from the MPC last week. The Bank rate was left at 0.5% and the Bank of England's quantitative easing (QE) programme at £375bn. Economic data in the last month have been slightly more positive than previously.
That means there would have been little reason for the six members of the Committee who had been voting to keep policy on hold to shift their votes in favour of more stimulus. In the meantime, the Bank of England’s focus is fixed on borrowing in the economy, having recently extended its Funding for Lending Scheme (FLS). We’ll learn more about what it expects from the UK economy when it publishes the Inflation Report on Thursday.
Strong production figures for March…
Industrial production was up 0.7% m/m in March as a chilly Easter mean Britons kept their heating on, driving up demand in the utilities sector. The largest component of production, manufacturing, was up 1.1% in the same month as well. Yet despite this rise industrial production was still 1.4% lower than it was in March 2012. Hopefully April’s strong manufacturing Purchasing Managers Index (PMI) result will mean continued growth next month.
…and good export numbers as well, but comparisons to 2012 are less flattering
March saw both goods and service exports recording monthly growth for the first time since last August. This helped close the UK's overall trade deficit to £3.1bn in March, from £3.4bn in February. Goods exports to non-EU countries gave a big 10%m/m boost but overall Q1 exports were still 2% lower than last year. Unlocking those non-EU markets is increasingly important to the UK recovery.
UK average house prices grow again
House prices rose by 1.1%m/m in April, putting the average value of a house 2% higher than a year ago, according to the Halifax. But is this really the start of a housing market recovery? Well on the plus side, mortgage affordability is better than it has been over the last 30 years and could improve further with an upgraded FLS. But the level of earnings the average person needs to buy the average house is still higher than its long-run average – so the ability to buy a house may still be relatively weak.
Eurozone producers and consumers point to recession
The composite PMI of business confidence rose to 46.9 in April, pointing to continued shrinking output. The downturn is still affecting Italy, Spain and France, but there was bad news for Germany where both the manufacturing and the services sector slipped back into contraction for the first time since November 2012.
Meanwhile the Eurozone’s beleaguered consumers felt the chill as retail sales declined for the second consecutive month in March. Sales volumes are now down 2.4% on a year ago, with Spain worst affected recording a fall of 10.5%y/y. The Eurozone’s economic problems have quite emphatically not gone away.
Weaker Chinese growth won’t prompt policy response
China’s April PMI readings were barely above the 50-mark, indicating weak growth. So with inflation contained at 2.4% y/y, we might have expected policy to be loosened. Not now though. Credit growth remains dangerously high so the fear of further inflating that bubble means policy is more likely to be tightened than relaxed.
Disposable income across the UK
Each of us had an average of £16,034 per year to spend or save in 2011, or £308 a week. That's after we've paid our taxes and received our benefits, but before we've spent money on bills, done the shopping or filled the car. But this national average masks huge variations depending on where you happen to live. London has the highest income per person, at £20,509 a year, whilst the North East has the lowest, with £13,560.
But incomes vary within regions too, with most disparity in the richer areas. Surrey in the South East has an average income per person of over £22,000. Yet head down to the coast at Portsmouth and income falls to £12,300. Variation between local areas can dwarf that between regions; so beware the usual generalisations. Of course, what really matters is what people can buy with their income and the cost of living varies hugely, too: in 2012, the average house in London cost £410,000 compared with £153,000 in the North East.
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With no change in interest rates or quantitative easing at last week’s Monetary Policy Committee (MPC) meeting it looks as if, like the month of March, he’ll go out like a lamb.