tony's blog

Thursday, July 14, 2011

A change of heart

I’m worried that my blogs are becoming a little predictable with their gloomy outlook on the economy and the world generally. All I seem to do is write bad news stories although arguably I just write about what I see. However even I was starting to get down so this week I wanted to find something positive in the economy to write about. I was determined to find some good news.

And on the face of it I found some.

So three cheers then. The Office of National Statistics claims unemployment is down. And inflation has fallen. I guess therefore we can celebrate and go on a shopping spree down the High Street then.

Sadly not the case. It is true that unemployment has fallen by 26,000 in the three months to May. This is particularly heartening for the 16 - 24 year olds where the latest figures show a drop of 42,000 in the three months to May to 917,000. However looking beyond the headline figures there are more worrying statistics. For example, the claimant count is up rising 24,000 in June to 1.5m, there are 5.4 unemployed people vying for the same job plus there is evidence that most young people are putting off looking for a job and are going back into full-time education which accounts for the drop in figures. (The real test will come in September with the yearly influx of school-leavers and graduates into the market.)

And what of inflation? Well it turns out that the reduction in the CPI was largely due to the early summer sales, with prices for games, toys and audio-visual equipment all falling. The cost of staples – such as bread, meat, fish etc- continue to soar and will add to concerns about household finances. So despite the surprise drop in inflation, economists still reckon CPI is likely to breach 5% in the autumn as higher utility bills kick in. So the analysts say this is a blip.

Ah well. I did try…

Friday, July 8, 2011

It's grim out there

More depressing news from the High Street. According to the British Retail Consortium, shop prices rose at their highest rate for two and a half years in June. This is hardly an inducement to lure would be shoppers back into the stores.

And this follows a run of bad news with Habitat, TJ Hughes, Jane Norman and kitchen and bathroom company Homeform, all having gone into administration. The gravity of the High Street downturn is outlined further in new research published which shows UK retail chains closing stores this year at a rate of about 20 a day. The latest figures from PricewaterhouseCoopers show 375 retailers went bust in the second quarter of 2011, a 9% increase on the same period last year.

So how can we persuade customers to return to the high street?

The simple answer is we can’t, certainly not in the short term. Recent research from the Joseph Rowntree Foundation found that British families need to earn 20% more than they did a year ago to remain out of poverty as the squeeze on household budgets worsens. Any spare funds seem to be earmarked for cutting mortgage debt, as outlined by recent figures from the Bank of England. There is little money left over in the kitty.

It’s fair to say that weak consumer spending has devastated the high street and I fear there is more pain to come. Conditions will remain difficult for some time.

Tuesday, July 5, 2011

The US Connection

The Federal Reserve has announced that it has cut its growth forecast for the US economy in the face of higher energy prices. It now estimates that the US economy will expand between 2.7%–2.9% this year, down from its April forecast of 3.1%–3.3%.

This follows on the back of recent figures published by the IMF, which has lowered its UK growth forecast expecting growth of only 1.5% this year, well below its 1.7% forecast in April and the 2% it predicted last autumn.

While the US and UK markets are very different, economic indicators across the Atlantic seems to have been plotting a parallel course to its UK counterpart. Of course, these days it is very much a global thing: a crisis in the euro zone can have a huge impact on the US markets via contagion. However I would argue that the UK rather than any of its other euro colleagues mirrors what’s happening in the US, albeit lagging a little way behind. So it’s worth keeping an eye on the US economy. Until their economy picks up we can see little hope of ours making a meaningful recovery.