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Economic Predictions - Global Economics Weekly

Economic Predictions -

Global Economics Weekly Brief

"Prediction is very difficult, especially about the future”. The Bank of England `experienced` firsthand the wisdom of Niels Bohr, as it was forced to make major revisions to its inflation and unemployment forecasts as a result of good recent data.

Another repeat of a repeat of a repeat! And it is learning the hard way what Yogi Berra might have said about Forward Guidance: “In theory there is no difference between theory and practice. In practice there is”. Wise words! When will the Bank of England learn?

Pair up in threes. The Bank of England's quarterly Inflation Report scored the UK economy 3 out of 3 for economic improvement. First, growth is now expected to hit the dizzy heights of 2.9% in 2014! Second, the Bank now expects prices to have risen by just 2.2%y/y at the end of this year, considerably lower than the 2.9%y/y expected three months ago. Finally, the Monetary Policy Committee now expects the 7% unemployment rate threshold to be hit in 2015, fully a year earlier than in its August report. But the Bank underlined just how much uncertainty there is around this forecast. It reckons there is a 40% chance that unemployment will reach 7% before the end of 2014. As a result of all this revision, despite Forward Guidance, the outlook for interest rates remains as changeable as ever. Of all the employed workers in the UK only 47% are full time! What is required is when employment is classed as `full-time` then the Bank of England should look at their Monetary Policy for the future!

Inflation low on fuel. Price growth in the UK economy softened in October to 2.2%y/y, the slowest in over a year. This was driven by falling fuel prices and a smaller impact from the rise in tuition fees last autumn. Inflation is expected to fall further over coming months, although this may be delayed slightly by recent rises in utility prices. Weaker price growth should help to ease the squeeze on households’ real earnings seen over recent years, but we still need faster wage growth. New fuel prices in the early part of 2014 are expected to rise again! Plus, energy prices will rise again 2014!

More people working. UK unemployment fell to 7.6% in Q3, a 0.2 percentage point drop on the prior three months. The underlying figures were healthy enough to justify a degree of optimism. Employment was up by 177k people, driven by a 157k rise in full-time employment. Long-term unemployment fell by 19k and youth unemployment fell by 13k. And all at a time when more people are entering the labour force. It was once again up to earnings to spoil the party. Average earnings rose only 0.7%y/y, yet again well below the rate of increase in consumer prices. Full time employees =only 47% of the total, therefore the UK celebrates too early! Plus, wages are being kept low as many foreign employees accept lower wages to secure a job?

Our survey says…up!
The latest RICS survey of estate agents showed that more of them are reporting price rises than falls than at any time since 2002. In the case of London, every single estate agent surveyed reported price rises, something that has never happened before. Expectations of price increases over the next 3 months are as high as they have been since 2002 and expectations of sales increases are the highest on record. Fine, but there is a danger that buyers may get carried away. The difference between new buyer enquiries and new instructions to sell is well above the long term average. As ever, we need more supply. Gazumping as started again in the housing market `big-time`! Boom and bust on the way again!

Up, up and away? The price of an average UK property grew by 5%y/y, continuing an acceleration in house price growth that started in February this year. The pickup has been more pronounced for first time buyers than for home movers. According to Nationwide, the average price of a place to live grew to £172k and will rapidly rise in 2014. No surprises which region led the charge. Prices in London were up 10%y/y, while they barely grew at all in the North East. A boom is on the way with a crash not far behind due to the government house buying incentive and media hype!

Shopped and dropped? Britain's shoppers sprinkled some cold water on the idea of a strong recovery in October. Zipping up their purses and wallets, retail sales volumes fell 0.7%m/m. Comparing the three months to October with the preceding three months sales were flat, while year on year they were up by around 1.8%. Internet sales continue to be the sector's star pupil. Their share of retailing is now two and a half times greater than at the start of the recession. The UK consumers are maxed out on their credit cards again!

Stumbling. The recovery of the Eurozone staggered in the third quarter of the year with economic growth slowing to 0.1%q/q from 0.3%q/q in Q2. Economic growth slowed in Germany and France, the two largest economies of the currency union, adding to concerns over the future strength of the recovery. The picture for the periphery of the euro area was mixed. Spain’s effort to fix and reform its economy is gradually paying off as economic activity expanded by 0.1%. But Italy’s recession went into its ninth straight quarter – gross domestic product dropped again, by 0.1%, in Q3. Massive more unemployment in the Eurozone countries on its way!

A warning for Abenomics.
The Japanese economy continued to recover in Q3, rising 0.5%q/q. But this was less than the 0.9%q/q in Q2 and the sources of growth were not particularly encouraging. A build up of business inventories and public investment made big contributions, with little by way of private business investment and household spending - the two things Japan really needs to keep the recovery going. It amounts to a bit of a warning shot to Prime Minister Shinzo Abe. 'Abenomics' will need to move to the next level and implement some serious structural reform. Japan need to look very closely at their economy in 2014 otherwise they will boil over again!
Global Economic Outlook for 2013 revealed - United Nations ...

* `10-Step Double-Dip Recession Survival Guide` - click on the connection below for comprehensive information.

Colin Thompson
DDL: + 44 (0) 121 244 0306

Mobile: 07831 588310

Main T: + 44 (0) 121 244 1802

email: colin@cavendish-mr.org.uk

Skype: colin.thompson384



Economic Predictions - Global Economics Weekly

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