Retail Spending Surge Could Lead to Rate Rise
June 24, 2008
Despite the doom & gloom sales retail sales rose by 3.5% in May - the strongest monthly growth since 1986. Totally out of sync with other government predictions the policymakers are dumbfounded, the rise is thought to have been brought about by some summer weather with consumer spending on salads and BBQ food and clothing for new summer outfits. All this shows no downturn in consumer confidence but some have warned this ’shop till you drop’ attitude will have serious consequences and will sow the seeds of the economies own demise.
If you are planning on putting yourself at risk financially you may want to wait, as despite the boosts in spending it looks like interest rates are going to increase and we may still be in for that downturn as the government tries to get inflation back down to the 2% target.
Inflation fears effect global equities
June 16, 2008
Last week the fears of inflation and interest rates continued to annoy investors. Many of the emerging market countries such as Vietnam, Indonesia and the Philippines have already increased interest rates to fight inflation and last week the reserve bank of India also joined them. The people’s bank of China didn’t increase interest rates but it did increase bank reserve requirements. The strong stance amoungst central bankers was reinforced on Tuesdaywhen the bank of Canada surprised the markets and kept its key interest rate unchangedat 3% instead of reducing it which was expected worldwide. Read more
Views on the UK market outlook
June 11, 2008
UK interest rates seem to be on hold for the moment as the Monetary Policy committee (MPC) battle to get inflation under control. Cutting rates with CPI at 3% (and with 4% possible in the coming months) would clearly be difficult for the MPC to justify. Inflation shows no sign of easing in the short term, driven by rising food and fuel prices prompting Merv the swerve to state that “the MPC is facing its most difficult challenge yet”.
The latest survey on households’ expectations of future inflation hit a record for a fourth consecutive month. Average expectations of consumer price inflation in 12 months has risen to 4.1%, the highest since the poll began in 2005. The MPC is also likely to be concerned by the signs of mounting price pressures from the high street. The CBI’s survey reported that 56% more retailers said that they had raised prices this month than said they had cut them, the highest such proportion since May 1992. A net 52% of retailers said that they also plan to increase prices again in June.
Minutes from the last MPC meeting showed that only Blanchflower voted for a rate cut. However, there are divisions on the effect that the falling property prices are having on consumer spending. Some members believe that the impact of weakening property markets on the rest of the economy could be more substantial than implied by the central projection. As a result, it is possible that the current easing is only temporary.