UK Economics news and Market Updates for the week ending 18th August. Why the economy could be growing by 1% this year.

1. The Saturday Economist johnashcroft.co.uk
Retail sales, inflation, employment rise Saturday, 18 August 2012
Economic news this week OTHER NEWS
suggests the economy is Retail Sales
not in recession but may be Retail sales were up by 2.8%
growing by around 1% this in July.
year. --------------------------------
Inflation
Rising inflation, falling CPI basis 2.6% in July
unemployment, retail sales compared to 2.4% in June.
up and car manufacturing up, ------------------------------
this is not consistent with an Unemployment
economy in recession or flat Claimant count fell by 5,900 in
lining for that matter. July - a rate of 4.9%..
------------------------------
Our model based on output Car Manufacturing
and employment, suggests the Increased by 22% in July
In the minutes of the MPC for August, the nine members
economy grew by around 1% no tsunamis assist output.
voted unanimously to maintain base rates at 0.5% and to
in the second quarter and will maintain the level of QE at £375 billion. “For some members -----------------------------
grow by around 1.2% for the the decision was nevertheless more finely balanced, since MPC Minutes August
year as a whole. The economy a good case could be made at this meeting for more asset More QE on the way? Minutes
is not in a double dip or flat. purchases.” The MPC are placing great hopes on the FLS. suggest more gilt purchases?
Closing : FTSE : 5,847; 10 Year Gilts 1.67%, Oil Brent Crude $113.16; Gold $1,614; $ 1.569; € 1.2739

2. The Saturday Economist johnashcroft.co.uk
Car manufacturing up 22% in July Saturday 18 August 2012
Car manufacturing surged
by 22% in July and at a
rate of 15% for the year as
a whole.
Car output rose for the
13th consecutive month, up
22.2% in July and 15.1% for “Car manufacturing
the year-to-date. continued to perform
well”, said Paul Everitt,
Commercial Vehicle output SMMT Chief Executive.
stabilised down 1.3% in the “While uncertainty
month after a 7.7% fall for in Europe remains a
the first seven months. challenge, the £6 billion
investment committed
UK engine production was to the UK in the last two Output is likely to hit 1.45 million units this year
up 0.3% over the year, with years delivers long-term compared to sales of 2.0 million and peak output of
a narrow 1.9% downturn in growth opportunities. 1.6 million pre recession.
the month. Our products have
enormous global appeal.”

3. The Saturday Economist johnashcroft.co.uk
Surprise rise in inflation in July Saturday 18 August 2012
Inflation is on the rise Communication costs
according to latest data (4.4%), education (5%)
for July. Restaurants and hotels
(3.2%) were all on the rise.
CPI inflation increased to
2.6% from 2.4% in June Respite to inflation was
and RPI and RPIX inflation afforded in clothing and
increased to 3.2% from footwear 0.1% Transport
2.8%. 1.3% and recreation 0.4%.
Food and non-alcoholic Overall goods inflation
beverages increased by increased by 1.9% as
2.1%. Alcohol and tobacco service sector inflation
prices increased by 5.0% increased by 3.4%. “Oil prices are on the rise Inflation CPI basis
Housing and household again and service sector increased to 2.6% in July
services were up by 6.1%. Energy costs appear inflation is 3.4%. compared to 2.4% in June.
Furniture and household subdued in July but the
goods increased by 3.5% critical oil price was down The 2% target may be RPI and RPIX inflation
Health costs were up by 12% compared to July last elusive this year.” increased to 3.2% from
3.% year. 2.8%

4. The Saturday Economist johnashcroft.co.uk
Unemployment falls in latest data Saturday 18 August 2012
Unemployment fell as the Total pay rose by 1.6 per
claimant rate fell by just cent on a year earlier, up
under 6,000 in July to 0.1 on the three months to
1.59 million and a rate of May 2012.
4.9%.
Regular pay (excluding
The wider LFS survey bonuses) rose by 1.8 per
confirmed a fall of 46,000 cent on a year earlier.
in the three months to June
to a level of 2.564 million The number of full-time
and a rate of 8%. workers increased by
130,000 to reach 21.41
The employment rate for million and the number of
those aged from 16 to 64 part-time workers increased
was 71.0 per cent, up 0.4 on by 71,000 to reach 8.07
increased by 39,000 on the The number of people
the quarter. million.
quarter to 4.20 million. employed in the private
Public sector jobs were sector in March 2012 was
There were 29.48 million The number of employees
5.90 million in March 23.43 million, up 222,000
people in employment aged increased by 128,000 to
2012, down 39,000 from from December 2011.
16 and over, up 201,000 on 25.02 million as the number
December 2011.
the quarter. of self-employed people
Page 4

5. The Saturday Economist johnashcroft.co.uk
Retail Sales up 2.8% in July Saturday 18 August 2012
Retail sales in July were This compares with £6.6
up by 2.8% in volume billion in June 2012 and
terms and up by 3.1% £6.5 billion in July 2011.
in value according to the
latest data from the Office The average spend via the
for National Statistics. internet was estimated to be
£505 million in July 2012
The June volumes were approximately 9% of total
also revised up to 2.6%, so retail sales values.
over the last three months
retail sales have averaged Strongest retail sectors
2.5%. were elusive to define!
Still below the long run Food sales were up by just
average of 3.4% but this is 1% and clothing sales fell
not recession territory. slightly.
The average weekly spend Household goods sales
for all retailing in July 2012 were up by just 2%. Online
was £6.7 billion. sales are driving retail
growth up 14%.
Page 5

6. The Saturday Economist johnashcroft.co.uk
What happened in the world this week Saturday 18 August 2012
The Finns are in ... were external factors
Finland is totally committed contributing to the decline
to the euro, its European said ministry spokesman
affairs minister said Shen Danyang.
following comments from
its foreign minister that
the country was preparing
for a break up of the single
Salute to the Euro Foreign direct investment
currency.
Investors welcomed the in China fell 8.7pc in July,
statement by Angela the government said, as the
Earlier in the week ...
Merkel - the Chancellor economy continues to feel
Finland’s foreign minister
explained the pledge by the pinch of slowing global
had warned the country is So much for onshoring
the European Central Bank growth and the European
preparing for a full-blown The Sensata plant in
to do whatever it takes to debt crisis.
currency crisis as tensions Freeport is profitable and
support the euro project in the eurozone mount. competitive, but owner,
was “completely in line” The slowdown in world Bain Capital, has decided
with the views of the Euro Finland will not tolerate economic growth, to ship jobs to China – and
leaders even the Finns are further bail-out creep, fine increasing uncertainties and forced workers to train their
in. words indeed. a lack of proper solution to overseas replacements.
the European debt crisis
Page 6

7. The Saturday Economist johnashcroft.co.uk
Professor Milton Keynes column Saturday 18 August 2012
GDP and Claimant Count Comparisons
I have been puzzled In this chart the blue line GDP ONS PMK
by the strength of the represents the change in Q4 0.6 0.6
employment data and the GDP year on year and the Q1 -0.2 1.2
apparent weakness of the red chart represents the Q2 -0.7 1.7
GDP figures as published quarter on quarter change Q3 na 1.8
by the Office for National in the claimant count.
Statistics writes our resident
head of research Professor It is inverted so that as the
Milton Keynes this week. claimaint count increases,
the inverted chart falls in
Most people still think of line with the GDP change.
employment as a lagging
indicator of economic The most recent two
growth but as my chart quarters suggest the
explains, the claimaint estimates for GDP decline
count provides an extremely are at odds with the
reliable coincident indicator employment data. Far from
of trends in the economy. falling, the economy may
well be growing.
Page 7

8. The Saturday Economist johnashcroft.co.uk
Markets : FTSE 5,874 : DOW 13,275 : Nasdaq 3,076 : DAX 6,945 Saturday 18 August 2012
FTSE 5,852 + 5 £:$ 1.569
DJIA 13,275 + 67 £:€ 1.274
NASDAQ 3,076 + 152 $:€ 1.227
DAX 7,041 + 95
$:¥ 79.37
CAC 3,488 + 52
Base Rate 0.50%
Nikkei 9,162 + 271
10 yr UK 1.67%
Hang Seng 20,116 - 20
10 yr US 1.81%
10 yr Euro 1.51%
Brent Crude $ 113.71
Copper 342.00
WTI Crude $ 96.21
Corn 799.00 - 4
Gold $ 1.614.0
Wheat 874.00 - 13
Silver 5000 $ 2,803.0
Cotton 72.95 +.05
Platinum $ 1,472.7
Page 8

9. The Saturday Economist johnashcroft.co.uk
Growth Inflation Unemployment Government Borrowing
GDP in the second quarter Inflation CPI basis was 2.6% Claimant count in July fell In the first three months to
fell by 0.8% year on year as in July. Inflation RPI and by 5,900 to a level of just June, Government was up
the recovery of 2010 petered RPIX increased to 3..2% from under 1.6 million and a rate by £4.5 billion. Borrowing
out in 2011. 2.8%. of 4.9%. is likely to exceed the levels
achieved in 2011/12.
Growth in Q1 fell by 02%. In Manufacturing price inflation The LFS count fell slightly
2011 UK growth was up by fell to 1.7% in July, latest (three months to June) to a
0.8% and 1.8% in 2010 . earnings up by 1.8% in May. level of 2.56 million. 8.0%

10. The Saturday Economist johnashcroft.co.uk

11. The Saturday Economist johnashcroft.co.uk
The Saturday Economist is a round up of the The publication of this document should not be
week’s economics news for the UK published construed as the giving of investment advice.
on the web site johnashcroft.co.uk.
Forecasting is subject to frequent revision
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The information was originally published in
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In particular, no reliance should be placed on Data adapted from the Office for
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12. The Saturday Economist johnashcroft.co.uk