pro.manchester economics review Q1 – rebalancing the economy or dans la flotte?

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The pro.manchester outlook is slightly contrarian. The review is produced on the basis that growth in the current year will be ahead of expectations at 2.6%, inflation will be around 3.6% by the end of the year but will not fall to target thereafter. Government borrowing will fall faster than the consensus forecast but there will be no improvement in the current account as outlined.
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UK retail sales January, Britain isn’t eating or are we eating each other?

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The seasonally adjusted value of retail sales in January 2011 rose by 8.2 per cent compared with January 2010 and the seasonally adjusted volume of retail sales in January 2011 rose by 5.3 compared with January 2010. It’s a retail boom or is it? What is happening to food? Britain isn’t eating according to the official figures. Consumers having emptied the freezer in December must have started eating each other in January as sales fell by a further 2.7%. I love data and I love the ONS but something is happening to the numbers. Can it be that more and more food sales are going on line.
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UK Inflation Report – the model is flawed – it’s time for a futile gesture

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The inflation report made for gloomy reading, the bank has adjusted the forecasts for growth this year to around 2% and inflation is heading the wrong way towards 5%. Not to worry, in the medium term, inflation will revert to target 2% because that is the way the Bank of England model works. The Governor cracked a joke, suggesting a rate rise from such a low floor would be a futile gesture to manage the economy. For savers in the “unhappy economy” whose earnings have been severely damaged, this would be a positive gesture to reward the prudent and far from futile. JKA
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Inflation report – it’s time for a futile gesture

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The inflation report made for gloomy reading, the bank has adjusted the forecasts for growth this year to around 2% and inflation is heading the wrong way towards 5%. Not to worry, in the medium term, inflation will revert to target 2% because that is the way the Bank of England model works. The Governor cracked a joke, suggesting a rate rise from such a low floor would be a futile gesture to manage the economy. For savers in the “unhappy economy” whose earnings have been severely damaged, this would be a positive gesture to reward the prudent and far from futile. JKA
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UK inflation rises to 4% – the hawks are circling, will rates have to rise?

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Inflation CPI basis in January increased to 4%, that’s twice the level of the Bank of England target. The Governor has had to write yet another letter to the Chancellor explaining why the MPC was failing in the challenge to curb inflation. In his letter to the Chancellor, Mr King said three primary factors were behind the increase, the fall in sterling, the rise in VAT and recent increases in the prices of commodities, particularly energy. The Bank of England is running out of room and stretching credibility. Views within the MPC are polarising. The dependence on “gapology” is anachronistic. Two hawks are on the panel already but more doves will morph before too long. If the first quarter GDP figures are as strong as expected, interest rates will rise as early as April or May.
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UK trade figures – the J curve is down the U bend ..

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The trade (in goods) figures this week dashed the hopes of analysts and policy makers hoping for a rebalancing of the economy to export growth. Exports surged by 17% in the final quarter of the year but so did imports up by 18.5%. As a result the trade deficit ballooned to over £26 billion compared to just £21 billion in the final quarter of 2009. Rebalancing the economy, “waiting for the day the boats no longer come in” will be as probable as Miss Haversham’s trip to the registry office. It is time for the Old Lady to take off the cobwebbed wedding dress, dust off the cake and get out more.
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The FTSE set to rise higher but what of interest rates in the UK ..

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Equity markets around the world have rallied from the lows of 2009 offering 60% gains for bottom feeders brave enough to take stock. The FTSE World Wide index now stands within 25% of the 2008 peak. In developing markets, the gains had been even higher, rallying from a low of 160 to around 340 according to the FTSE index, with the market now ready to test the 2007 high of 360. Markets had been supported by a strong growth in corporate earnings and a period of low interest rates. In the UK we expect above forecast growth, with inflation remaining a challenge to policy in 2011. As for base rates, the market consensus is for rates to end the year at 1.25%. If GDP growth is as high as we anticipate in the first quarter of the year, the shocking inflation figures could force the Bank of England to act earlier. Rates could begin the rise as early as April or May pushing beyond 200 basis points by year end.
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pro.manchester Brewin Dolphin calls the FTSE higher but what of interest rates…

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Equity markets around the world had rallied from the lows of 2009 offering 60% gains for bottom feeders. The Brewin Dolphin forecast for the FTSE end of 2011 is 6,450, that’s an eight per cent rise from current levels. 6,450 is a good call, with the market set to test the 6,500 high before the end of the year. As for base rates, Brewin Dolphin is calling a 50 basis point rise in two steps in the second half of the year. The market consensus is for rates to end the year at 1.25%. If GDP growth is as high as we anticipate in the first quarter of the year, the shocking inflation figures could force the Bank of England to act earlier. Rates could begin the rise as early as April or May pushing beyond 200 basis points by year end.
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