MPC to continue its schedule of gradual rate rises

11 June, 2019

Sam Roberts

With so much taking place in political circles, you could be forgiven for thinking that nothing else of any great significance to the stocks, currency and economic markets was taking place.

Yesterday evening Michael Saunders (he is actually an economist at Citigroup) an ‘external member’ of the Bank of England gave a speech. Here he explained about the MPC’s (Monetary Policy Committee) decision, despite a slowdown in global growth, to continue its schedule of gradual rate rises. We are currently ‘holding fast’ at 0.75% but try not to forget our highs (just after joining the EU) of 17% and our recent lows of 0.25% in 2016. With a forty five year average of 7.51% it becomes clearer how much scope the Bank of England have to try and ‘off-set’ some of the uncertainty brought about by Brexit.

Today we have the release of the ‘Claimant Count Figures’ for the month of June. Whereas these figures were (and to a degree still are) a clear indicator of the benefit claimant to unemployment numbers ratio. Over the past few years, with the Governments’ policy of stopping benefits for claimants ‘at the drop of a hat’ the number has drastically gone down, showing the number of benefit claimants ‘ala’ the unemployment figures reduced dramatically. Unfortunately, there are now thousands of unemployed people who do not have benefits, so thereby are not counted as unemployed and are now living from ‘food banks’. However, the data released today is expected to be up by around 3 thousand to 24.7 thousand just over the predicted 24.2 thousand. Couple this with the high unemployment across most of Europe and the markets will not react too badly to these figures.

Today also sees the UK Average Weekly Earnings Growth figures. These are quarterly figures and a clear indication of the UK’s productivity measured against our output and our ability to trade. This takes a sample from a wide range of industry sectors including: Manufacturing, Hotels and Restaurants, Construction, Finance and Business to name a few.

This includes average weekly pay and also includes bonuses. If we are getting paid more across the board, then we are more productive and strengthening our economy. Only problem is, the figures have been somewhat ‘lean’ in the last few quarters. Consider the quarter measured before the second quarter for 2019 Manufacturing expected to be at 1.9% came in at 1.6% Construction expected 4.8% actual 3.7%
Hotels and Restaurants expected 2.6% actually came in at a disappointing 1.6% (just ask Jamie).
Over the past two decades or so, the rate of pay hit an all-time high of 6.6% in 2007 (that’s the bubble inflating) and an all-time low of -2.6% in March 2009 (and the bubble has popped).

Friday sees a speech by Governor Carney of the Bank of England. This is expected to be a reaffirming of the Banks commitment to steady rate rises.

The markets will respond to any signs of positivity, given by leadership or businesses. It has always been this way and will continue to be. Unfortunately, our leaders are busy auditioning for Deal or No Deal (sorry) the Conservative party leadership. So the markets will continue to move slowly until there is a spark of positivity.

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