ECONOMIC OUTLOOK
BANK of England governor Mark Carney said it was not yet time to raise interest rates given low wage growth, low business investment and uncertainty surrounding Brexit. In a speech at Mansion House, Carney reiterated he was satisfied rates should stay put despite three members of the Monetary Policy Committee voting for a hike earlier this month.
Asking prices for residential properties dipped this month, the first such fall since December, according to website Rightmove.
The month-on-month fall was 0.4% and was the first June price decline in eight years. However, year on year, asking prices were up 1.8%. Rightmove said the weakness in house prices reflected political uncertainty.
Last week saw a rash of poor economic news following the General Election. A survey of 700 members of the Institute of Directors (IoD) found 57% were quite or very pessimistic about the economy over the next year, with just 20% optimistic.
The results were significantly worse than in May’s survey, when 37% of respondents were pessimistic and 34% were optimistic.
The Office for National Statistics (ONS) reported that consumer inflation (CPI) increased to 2.9% in May. The headline CPI rate is now expected to top 3% later this year.
The latest rise was attributed partly to steep increases in the cost of package holidays as well as computer games and equipment – which are usually imported.
However, producer input inflation declined from 15.6% in April to 11.6% in May, with output price inflation steady at 3.6%.
Think-tank Capital Economics said: “This supports our view that the drop in the pound [since last year’s Brexit vote] has fed through faster than expected – rather than by a larger amount. As a result, we think CPI will peak at just above 3% this year… and is likely to drop back fairly quickly in 2018.”
The ONS also reported that the real value of wages – taking into account inflation – is falling at the fastest pace in three years. Annual pay growth was just 2.1% in the three months to April compared to a year earlier. Excluding bonuses, the figure was even lower at 1.7%. Economists fear the squeeze on household incomes will hit consumer spending.
Retail sales were down by more than expected in May, according to the ONS. Retail sales, excluding fuel, fell 1.6% last month after a 2.2% rise in April. Including fuel, the monthly decline was 1.2%. Year on year, sales were up 0.9% – the weakest growth in four years.
Chris Williamson, economist at IHS Markit, said the economy faces an “inevitable slowdown” due to rising inflation, falling wages and weak spending.
Meanwhile, interest rates in the US were rose by 0.25% to a range of 1%-1.25%. And the Bank of England’s Monetary Policy Committee, in a surprisingly close vote of five to three, kept UK rates unchanged at 0.25%. The three dissenters wanted a rate rise to counter surging inflation.