The Saturday Economist, UK Economics News and updates 7th July 2012. A look at the week in revew

1. Saturday, 7 July 12

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In this issue : Page No. Saturday July 7th 2012
The week in review 2
Producer Prices in June - prices are falling 3
Rates on hold - but more QE is on the way 4
World trends - The IMF to cut forecasts 5
Oil Price Watch this week - Brent Crude rallies 6
Latest Economic Indicators 8
John Ashcroft The Saturday
Economist is Chief Executive of
pro.manchester, a director of
Marketing Manchester, a member
of the Greater Manchester
Chamber of Commerce, the
AGMA Business Leadership
miss Council and a visiting professor at
’t MMU Business School
Don specialising in Economics,
Corporate Strategy and Business
Modelling.
Education : London School of
Economics London Business
John Ashcroft.co.uk School with a PhD in economics
from MMU.
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Saturday July 7th 2012
The Week in Review - manufacturing falls, more QE is on the
way as base rates stay on hold but the IMF is to cut forecasts.
Manufacturing prices fall, pushing retail inflation towards target, as output prices fall to
2.3% in June from 2.9% in May. Input prices fall by -2.3% as oil prices and commodity
prices fall.
Base rates are on hold but more water is thrown on the drowning by the Black Cloud
Gang as a further round of QE is announced. The Asset purchase facility is to be
boosted by a further £50 billion to £375 billion, That’s 25% of GDP. Why stop there?
Christine Lagarde says the world must work together in a great big melting pot of Manufacturing price inflation falls to 2.3%
economic policy. Forecasts for growth are to be lowered by the IMF later this month.
The IMF is due to release its growth forecast for the global economy on July 16. It is
expected to be lower than anticipated in the IMF World Economic Outlook published in
April. World output was projected to grow 3.5 percent in 2012, recovering to 4.1
percent next year but problems in Europe and elsewhere will push the forecast towards
2.5% in line with the World Bank projection issued last month.
Where does that leave our outlook? Slower growth - but no Great Depression. JKA.
The world must work together says the IMF
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4. Saturday, 7 July 12

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Saturday July 7th 2012
Producer Prices June
Manufacturing prices were released on Friday by the ONS. The rate of output price
inflation fell to 2.3% in June from 2.9% in May. Input prices actually fell by -2.3%
from a revised 0.0% in the prior month.
Is this a good thing, well yes, the long average rates are 2.3% for output prices and
over 6% for input prices, the long term rates are consistent with a 2% inflation
target..
For some, the fall in manufacturing prices may signal a bout of deflation is coming
and this would be a bad thing. Hence the push for more QE. Will prices fall further,
a little but the figures in June were flattered by a fall in oil prices down by 17% in
June compared with last year. Sterling rallied with a 5% rise in the trade weighted Manufacturing output prices 2.3% in June
index boosted by a 10% rise against the Euro, offset by a 5% fall against the dollar.
The major fall in input prices followed from the fall in world commodity prices as
import metal prices fell 10% and other import prices (food for example) were
subdued.
Where does that leave our forecasts for the end of the year? By the final quarter
we expect output prices to be around 2.5% to 3% assuming Oil brent crude basis
trades around $110 - $115 per barrel. No deflation but consistent with a 2% to
2.5% CPI target.
Manufacturing input prices -2.3%
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7. The Saturday Economist johnashcroft.co.uk
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Saturday July 7th 2012
Base rates on hold but more QE unleashed
Thursday the MPC announced base rates were on hold but a further round of QE
was on the way with a further £50 billion round announced. A further step in the
debt monetization process undertaken, by the Black Cloud Gang. The total rising
to £375 billion, that’s 25% of GDP.
What will it achieve other than assisting the job of the debt management office in
peddling gilts for the Chancellor’s £120 billion deficit this year. Ten year gilt yields
hit 1.6%, pushing pension funds into a widening yield gap. What will it achieve for
the wider economy, I have no idea as our recent Discussion Paper explains.
The APF money would be far better spent on the acquisition of SME Bonds or Bank announces a further £50 billion QE round
Property Bonds, Ten-Twenty year low coupon term bonds issued by project Merlin
banks bought by the Bank of England and guaranteed by Treasury.
This would go some way to calming the fears of the Financial Policy Committee
now populated by Black Cloud hoodies. Bank of England warns UK banks need
more capital screams the headline in The Telegraph on Friday as Phillip Aldrick
explains “the FPC judged that overall capitalisation of the banking system was
unlikely to be sufficient for stability to be assured”. Excellent, don’t panic just yet
Gilt yields fall to 1.6%
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Saturday July 7th 2012
World Trends - The IMF will reduce forecasts for growth
To Secure Recovery, The World Must Work Together, says IMF Chief Christine
Lagarde. The global community must work together to meet the challenges thrown
up by the global financial crisis and to ensure future stability and growth, says the
IMF head on a whistle stop world tour.
The IMF is due to release its growth forecast for the global economy on July 16. It
is expected to be lower than anticipated in the IMF World Economic Outlook
published in April.
World output was projected to grow 3.5 percent in 2012, recovering to 4.1 percent
next year but problems in Europe and elsewhere will push the forecast towards
2.5% in line with the World Bank projection issued last month. Slower growth - but IMF set to cut world growth forecasts
no Great Depression.
Problems in Europe persist, the recent US jobs data disappoints but the rate cuts
in China signal positive intent.
Where does that leave our outlook? Slower growth - but no Great Depression.
JKA.
The world must work together warns the IMF
John Ashcroft.co.uk Page 5
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10. Saturday, 7 July 12

11. The Saturday Economist johnashcroft.co.uk
Oil Price Watch ......
150 Saturday July 7th 2012
Oil brent crude closed at $98.19
last week (FT source), as the market
bounces from the floor.
120
90
Oil Price Brent Crude $ Qtr Data
$ I II III IV
60
2010 76.35 78.37 77.49 87.28
2011 104.79 116.57 113.57 109.16
30
2012 118.83 107.57 110.00 115.00
Data Set Forecasts
0 Our forecasts more bullish
2004 2005 2006 2007 2008 2009 2010 2011 2012 than the World Bank $107
this year.
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Latest Economic Indicators Saturday June 7th 2012
Indicator Period Latest Notes, next release Source
Inflation CPI May 2.8% ONS
Inflation RPI May 3.1% .. ONS
Inflation RPIX May 3.1% .. ONS
Earnings April 1.8% ONS
Retail Sales volume May 2.0% ONS
Retail Sales value May 3.3% ONS
Unemployment April 2.62 LFS Million trailing 3 months ONS
Unemployment % April 8.2% LFS trailing 3 month ONS
Claimant count May 1.59m Million ONS
PPIs output June 2.3% Manufacturing prices (output) ONS
PPIs input May -2.3% Manufacturing prices ( input) ONS
GDP growth Q1 2012 -0.3% ONS
Manufacturing April -0.9% year on year growth ONS
ONS : Office for National Statistics, LFS : Labour Force Survey
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