The Bank fails to hold back the good news on the economy

Retail sales figures for July show the strongest growth since January. There’s a surprise for the Bank of England, who had highlighted a major knock to  consumer confidence and was expecting consumer expenditure to nosedive. Instead July saw big increases in eating out, food and clothing sales. The weather helped , we are told, implying people carried on as normal regardless of the referendum result.

The Nationwide house price index rose 0.5% in July, the first full month post the vote. There’s another surprise for the Bank of England, who told us house prices were going to drop after an Out vote. Actual figures confirm the predictions I made here, that there will be no Brexit collapse and no Brexit inspired recession,  nor any  collapse in house prices after the vote.

The Bank should have waited a few days for these real  figures on what happened in the five weeks after the vote, instead of plunging in with its monetary package. There was no need to cut rates further or to buy up more government bonds. The UK government interest rate collapsed after the vote anyway, before the Bank announced its passion to buy up yet more   government bonds. The government had to pay 1.37% to borrow 10 year money on referendum day. That halved in the month following the vote. Yesterday it slumped further to just 0.6% with the Bank’s package adding to the bond  bubble pressures already in the system.

The Bank’s big shift from forecasting a recession (see their May statement and press comments) to forecasting a slowdown in growth for 2017 was picked up by some in the press and media. The Bank is now forecasting 2% growth this year and 0.8% next year. This 2017 forecast is far too low, and would have been even without the special stimulus now released into the system.

Now is an excellent time for people to shop and to buy British goods. Employment is high, real wages are growing, and the dearer imports will be cushioned for a bit by forward cover on currencies taken out by importers and retailers. Many retailers have been discounting and making special offers available for many months, from way before the referendum became an issue. The progressive power of the internet is helping control retail prices and offers competitive choices to shoppers. That is going to continue.

Doubtless retail sales and residential property transactions will fluctuate after the vote as they did before. The general pattern given the economic background remains positive for both. You would expect the usual seasonal lull in August, but should not expect a big fall in prices or output.

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34 Comments

  1. Lifelogic
    Posted August 10, 2016 at 5:35 am | Permalink

    Indeed and this all before we have have anything much in the way of sensible announcements on direction of travel from T May. Indeed rather the reverse on company board composition and likes. Why such delay from May and Hammond? Under 4 years to the next election get on with it.

    Things such as moving rapidly to lower simpler taxes, a bonfire or red tape, a move away from expensive green crap energy, the undoing of Osborne’s insane wage controls, over taxation of everything, his IHT ratting, his sugar tax and announcing new runways at Heathrow and Gatwick, the scrapping of HS2 and Hinckley C, the reduction of bloated and largely inept government almost everywhere.

    • Hope
      Posted August 10, 2016 at 12:05 pm | Permalink

      This is not about facts, it about conditiong the minds of the public to accept we were wrong to vote to leave the EU. JR, you need to impose pressure to get article50 invoked. May has not chastised these organisations or set a new narrative for them to follow. If Osborne could impose a scare story short cannot Hammond or May reverse it?

  2. Brexit Facts4EU.org
    Posted August 10, 2016 at 5:53 am | Permalink

    Another excellent upbeat piece Dr Redwood, thank you.

    Both the VISA/Markit report and the British Retail Consortium/KPMG report which came out over the last 2 days were very positive.

    Barclaycard chose to be negative in their commentaryt on their own report yesterday, but their figures showed the same good news about spending being buoyant.

    In fact many of Barclaycard’s secor-specific figures for growth in spending were actually higher than the other reports, which makes one wonder why Barclaycard chose as their headline “Consumer spending growth falls in July as confidence softens”. It’s hard to describe an average increase of 2.6% as a fall, but they managed it.

    The key point is that actual, real data is belying the continuing downbeat attempts at self-fulfilling phophecies by the Remoaners like Mr Carney and other influential figures. Thank goodness there are Parliamentarians like yourself who are trying to present a more reasonable picture.

    Best wishes, the Facts4EU.org Team
    http://facts4eu.org/news.shtml

  3. Duyfken
    Posted August 10, 2016 at 6:08 am | Permalink

    It is of course good news that the UK economy has not faltered after 23rd June, but why should it anyway? Yes, we have a LEAVE result but we are nowhere near actually making our leave from the EU, and it may be many months or even years before we are able to do so. Would I be wrong in suggesting to the BoE and others it would only be when or near to the time we achieve this that we could reasonably assess how it’s all going?

    BTW, I wonder if it may be tempting for sections of our industry to jump the gun and flout some of the present EU rules, such as for instance ignoring restrictions of the CAP or the CFP.

  4. David Cockburn
    Posted August 10, 2016 at 6:32 am | Permalink

    The Monday after the Brexit vote, the FTSE index fell by 2.55% to 5982, it is currently on 6851, so that was a great buying opportunity.
    Clearly the City bet wrong on the outcome of the referendum, as did the London based media and equally clearly the Bank and the IFS still can’t believe they got it all wrong.
    The British voters, with over 180 years of experience in using their votes to get the sort of government they want, have outsmartened and outthought the Elites who rule most of the time.

  5. Denis Cooper
    Posted August 10, 2016 at 6:40 am | Permalink

    Today the Telegraph is running article headlined:

    “Finance firms slash hiring after Brexit vote”

    But when you look at the contents of the article, and especially the graphs going back to last July:

    http://www.telegraph.co.uk/business/2016/08/09/finance-firms-slash-hiring-after-brexit-vote/

    it becomes clear that the headline is tosh, just “clickbait”; but unfortunately there will be many people who don’t click on it and who take the headline at face value.

  6. Ian Wragg
    Posted August 10, 2016 at 6:57 am | Permalink

    Off to order my new Honda Civic today. Doing my bit for the economy. French and German wines are banned in our house got some very nice reasonably priced from Cyprus.
    Reply Yes, it’s a good time to buy. Let us know if you get a special Brexit/recession discount – I doubt you will.

    • ian wragg
      Posted August 10, 2016 at 11:20 am | Permalink

      Got about £1500 worth of free toys with it. It’s the upgraded model of the 3 year old Civic I already have and it comes out £600 cheaper with free finance.
      Nothing to do with Brexit as the dealer says this was priced in about 6 months ago.
      Another thing, CMD said petrol prices would soar, ASDA has gone down a penny.

    • fedupsoutherner
      Posted August 10, 2016 at 11:47 am | Permalink

      Ian. Yes agree. There are some good English wines too!! I will be looking out for those to try. We also bought a Land Rover recently to support British workers. We all need to do this more often.

      • fedupsoutherner
        Posted August 10, 2016 at 11:49 am | Permalink

        forgot to add that our friend wanted to rent a property in Germany last week as he has a job out there but the owners told him they are only renting out to Germans!!

        • ian wragg
          Posted August 10, 2016 at 3:35 pm | Permalink

          Is that German Germans or Murkys millions??

          • fedupsoutherner
            Posted August 10, 2016 at 4:38 pm | Permalink

            Who knows?? Just not British I suppose. We are not flavour of the month but then wait until other EU countries decide to follow suit.

  7. alan jutson
    Posted August 10, 2016 at 6:59 am | Permalink

    What a surprise !

    It is still too early to make any real judgement.

    At the moment it looks like the BoE made a panic call, which does not hold well for their forecasts on anything else.

    Time will tell who is right in the end.

    Meanwhile the turmoil continues within the EU about the state of their economy and who is going to pay for its failure.

    • ian wragg
      Posted August 10, 2016 at 11:23 am | Permalink

      Lets hope we are well away from the suction as it sinks.Btw, why is may telling Holland etc that she won’t be triggering Article 50 until next year.
      Another 300,000 EU immigrants and another £10 billion wasted.
      OUT means OUT. Doesn’t she understand.

  8. Antisthenes
    Posted August 10, 2016 at 7:21 am | Permalink

    The failure of experts to make wrong forecasts and bad decisions means that experts should not plan or control anything that effects our day to day lives. We know what our needs are and we telegraph those needs through markets and so that those who supply those needs know what to produce and when. So things like interest rates and money supply should be the sole remit of the market not crystal ball gazers.

  9. The PrangWizard
    Posted August 10, 2016 at 7:38 am | Permalink

    I see that Sky News are running a ‘Recession Watch’ series of items. Their economics bloke stood in front of a series of charts yesterday upon which he was attempting to find a negative slant. When examining cheques in my early work in a bank years ago there was an expression ‘words and figures’ where they didn’t match – I was reminded of that.

    None seemed to show anything untoward.

  10. Frank salmon
    Posted August 10, 2016 at 7:44 am | Permalink

    Try telling this to the IFS, the BBC, the TUC, the PLP, the MPC, The CBI, the IMF, the EU or any other strand of our (authoritarian? ed) establishment.

  11. Nigel
    Posted August 10, 2016 at 7:51 am | Permalink

    A cut in VAT would really underpin this.

  12. CHRISTOPHER HOUSTON
    Posted August 10, 2016 at 8:42 am | Permalink

    The Bank of England is a clot and a blot on the landscape.
    One must know that all the talk from the Remain failures and the media about “A lack of consumer confidence ” “People are not spending money because they are afraid” must have had impact in stopping some people from shopping and spending normally. The fact that consumer spending is up shows just what it could have been if the Remainers, including the BoE, had just stopped moaning and whinging.
    The Bank of England jumped the gun and acted upon its own prejudice in its recent behaviour. There are many surrounding them trying to save very damaged reputations.Regime change at the BoE should have taken place right after the referendum result. It would have been better had that change taken place before the vote.

  13. alexmews
    Posted August 10, 2016 at 9:05 am | Permalink

    well – the press today, both GDN and Telegraph, are both flagging ‘crises’ as ‘the pound hovers at $1.30’ and concern over ‘the BofE’s failed bond purchase yesterday…’

    seems there is a crisis being engineered here.

    • Denis Cooper
      Posted August 10, 2016 at 11:31 am | Permalink

      It would be more worrying if the Treasury had a failed bond sale.

      As for the Bank offering to buy gilts worth £1.17 billion but only getting offers for £1.11 billion, that means the Bank was able to buy 95% of what it wanted which is hardly a disastrous failure.

    • acorn
      Posted August 10, 2016 at 2:12 pm | Permalink

      I didn’t sell them any of mine. Treasury 4% 2016 and Treasury 4% 2060 are both still paying 4% a year and will keep doing it till redemption. Like most pension funds, I bought them when they were new and appropriately priced; why would I sell them. Where would I put the cash now and get 4% return and offset the CGT.

      Monetary Policy does not work. Swapping Gilts back into the “reserves” (previous government spending that bought them originally), just pumps up other asset prices. It does not increase aggregate lending by banks either because, banks don’t lend “reserves”.

  14. Richard1
    Posted August 10, 2016 at 9:07 am | Permalink

    We must make a note of these forecasts and see whether they prove to be right. Presumably they are made on an ‘as is’ economic policy assumption. Suppose we had instead: radical tax simplification; reduction or elimination of green crap and vanity projects such as Hs2 and Hinkley Point; removal of trade tariffs against the rest of the world and (largely) vice versa; removal of the risk of ever encroaching EU regulation and the threat of transfers? Then I think we would have much higher growth. It seems to work in countries like Singapore Hong Kong and. South Korea so why not for the UK?

  15. Bert Young
    Posted August 10, 2016 at 9:26 am | Permalink

    I am fed up with the daily gloomongering statements from – so called – economists aided and abetted by the BBC . Results have so far shown how wrong they are and why we should have every faith in our future . Standing on our own feet is the best place to explore and make opportunities happen ; our entrepreneurial spirit is alive and well .

    We are , of course , exposed to the rigours of the international markets and are bound to gain (or suffer ) from its activity ; what China does to stimulate its economy and to stabilise currency rates will ripple on to us ; we can only ring fence ourselves from possible down market conditions . Gloomongering will not help .

  16. Kenneth
    Posted August 10, 2016 at 9:56 am | Permalink

    Did they think that people were saying “better no buy that pork pie because of Brexit”?

  17. Peter Stroud
    Posted August 10, 2016 at 11:44 am | Permalink

    I can remember when Mark Carney was, we were told, the saviour of all things financial and economic from over the pond. I must say that so far, he has turned out to be pretty tame and conventional.

  18. ian
    Posted August 10, 2016 at 12:21 pm | Permalink

    The BOE first bond action failed on 15 year bond and will now looking to buy 10 and 7 year bonds, if that fails he will have to try companies bonds.

    • hefner
      Posted August 10, 2016 at 6:00 pm | Permalink

      As pointed above by Denis Cooper, a 1.12 out a £1.17 bn is hardly a failure. I was very happy at school when getting a 95% result in my exams.

  19. ian
    Posted August 10, 2016 at 3:40 pm | Permalink

    The BOE has found some sellers on the 10 year bond, over 4x, that for the moment, of cos the bondholders want that interest money themselves and do not want to sell, so whether the BOE can complete this round of QE is to be seen but it can always take on more risk and buy companies bonds and lesser quality which they do not like doing, if can not fine the sellers, there is no QE, if that happen they would have to come up with another idea or put interest rates up so more people are willing to sell their bonds

    • StevenL
      Posted August 10, 2016 at 8:41 pm | Permalink

      Why not simply sell themselves some of the £350bn bonds they already have?

  20. Denis Cooper
    Posted August 10, 2016 at 4:46 pm | Permalink

    Apparently at least this part of the devastating damage done by the Brexit vote has now been reversed:

    https://www.theguardian.com/business/live/2016/aug/10/uk-gilt-yields-hit-record-lows-after-bank-of-england-bond-buying-failure-business-live?page=with:block-57ab319fe4b0aa844e0405fb#block-57ab319fe4b0aa844e0405fb

    “Today’s QE reverse auction in a success!

    Newsflash! Today’s Bank of England QE operation has passed off without a hitch.

    The BoE has successfully bought £1.17bn of UK gilts in today’s reverse auction. These bonds mature between 2023 and 2030.

    Investors flocked to take advantage of the chance to sell these bonds to the Bank of England.

    They offered £5.5bn worth of gilts to the Bank of England — or 4.7 times as much as the central bank actually wanted to buy.

    That’s a pretty solid result, especially after yesterday’s failed reverse auction of long-dated bonds.”

    Phew, that’s a relief, although of course it could still go wrong again once the even more devastating long term damage of the Brexit vote works through.

  21. Caterpillar
    Posted August 10, 2016 at 7:05 pm | Permalink

    More QE and low rates that the BoE will not know how to unwind. It is a perculiarvbias that any opportunity to,loosen is taken, but no indication (even matching forward guidance) to tighten is followed. The current BoE knows only one direction of travel, some might think psychological not economic (group escalation of commitment).

  22. John
    Posted August 10, 2016 at 7:05 pm | Permalink

    Why should I buy “British goods”? Only items made or grown in England are good enough for me and many of my patriotic countrymen.

  23. CHRISTOPHER HOUSTON
    Posted August 10, 2016 at 10:25 pm | Permalink

    Off Topic:
    TV announced we have got six medals so far in the Olympics. A greater number than we had at the equivalent period in the last Games.

    Despite my avid watching of news and Olympic events, strangely I have not happened upon one single medals’ ceremony nor one single full event… even the 100 metre breaststroke final. I have only managed to see a 20 metre final canoe journey and two sets of British swimmers hugging each other.
    Not like the last Olympics where we were shown our victories repeatedly.

    Tonight I was able to see a Brazillian Judo champion standing on the podium and weeping as her national anthem was played. Before that I saw an interview with her mother in her home and a tour of her gym and interviews with those doing judo who know her.

    Are the powers-that-be in the UK now afraid of the patriotism our people displayed in the Referendum? Their patriotism did go far beyond the “advice” given. Our elite should not be afraid that our people love their country.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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