Retail sales and inflation

The official forecasters and many commercial economic forecasters have now joined me in expecting around 2% growth in 2016 and 2017. They took their forecasts on a wild big dipper which I avoided,  plunging their estimates  to low growth or no growth. They thought both investment confidence and consumer confidence would bomb after the Brexit vote, but they now admit they were wrong.

Today  our disagreements are a bit more technical and limited. I have agreed with them that inflation would pick up from the very low levels of last summer. It is doing so and may rise a bit more. I disagree with them that this is mainly owing to the fall in the value of the pound. It has been mainly owing to the surge in oil and other commodity prices, and some domestic wage drift in hotels and catering in particular as the living wage comes in. The rising inflation is an advanced  world phenomenon where there is reasonable growth, not a Brexit one. German inflation has risen in lock step with ours, and US inflation has risen more.

I also disagree with them that the fall in the pound is the sole result of Brexit. There was a large fall in sterling from July 2015 to April 2016 before the vote, when most market participants and the polls were confident Remain would win. The yen and the Euro have also been weak against a strong dollar over much of this period. Interest rate differentials are the main factor likely to be affecting these cross rates. The US signalled early its wish to put up rates, has now put rates up to 1%, and intends to take them higher again this year. All the time the Bank of England and the ECB keep their rates on the floor the dollar is likely to be more favoured by those with footloose cash.

My other disagreement has been over retail sales. I saw no likelihood of a big fall in consumer confidence and retail sales after the vote. Even I was surprised by the acceleration, to reach an unsustainable growth rate of over 7%. The latest retail sales for the year to February show a solid 3.7% growth. If you take out motor fuels, hit by the oil price hike, volumes are up 4.1%. Many have been saying that rising inflation will wipe out real income gains, throttling back spending. We already have an inflation rate around the level of wage rate growth, yet retail sales growth sails on.

How can this be? People are working more hours, getting more bonus and overtime, more are joining the workforce. More are now willing to borrow to buy a car or a new home because there is more confidence about employment levels and employment prospects.


  1. Newmania
    March 26, 2017

    “Its nothing to do with Brexit” . I predicted it at the time people like John Redwood were claiming that Brexit would be an unalloyed bountry. Not hard was it .
    So here we are with economic bad news explained away with yet another Just So story
    The drop in the pound is caused by Brexit.
    That fall is inflationary.
    That is as open for debate as the boiling point of water
    This means whereever we are we are suffering more inflation than we otherwise would . Its really incredibly simple .

    Reply So why has US inflation risen more than UK with the dollar strong?

    1. Anonymous
      March 26, 2017

      Newmania – The EU is dead. Get over it and move on.

      1. David Leslie
        March 27, 2017

        Three glaring errors in your post. Bravo, anonymous leaver-ostrich.

    2. Lifelogic
      March 26, 2017

      Also the £ would be rather stronger if we had a real Conservative government with vision, rather than these Miliband light socialists.

    3. Dennis Zoff
      March 27, 2017

      “bad news explained away” How so?

      For sometime now John has been very consistent with his positive market evaluation pre and post Brexit and highly erudite in demonstrating a fundamental understanding of business reality; not some tiresome naysayer rhetoric!

      On the other hand you appear to be rather annoyed that your doom mongering has not come to pass! Why?

    4. Jerry
      March 27, 2017

      @JR Reply; The US is irrelevant, they have different inflationary pressures.

      The FX market data show that the GBP fell through the floor on and the days after June 24 2016, and for a nation that imports so much such a drop in the value of the GBP is inflationary by definition to the UK economy. As @Newmania says, this is as open for debate as the boiling point of water – period. By deigning this what you are trying to do is no different to what Harold Wilson tried in his disastrous “The Pound in your pocket” broadcast, when he was forced to devalue the currency….

      1. stred
        March 27, 2017

        Having bought a large deposit of Euros in 2008 in order to buy a French house, only to see Scooter Boy elected in France and introducing Social Tax instead of CGT in order to double charge on top of UK CGT, and worldwide wealth tax including children’s accounts, the savings have deteriorated at near zero interest. I was delighted that the £ went down after the vote and was about to exchange back to £s when I had to have my password re-set. During the time taken, the £ jumped back up 6 cents but I am now hoping that the fall, which started in early 2016, will continue back to the level in 2008. Unfortunately, the punters don’t seem to be listening to the doom mongers at the moment.

        Has anyone noticed that after Mr Osborne decided to increase the minimum wage wages went up and that the figure for the increase is about the same as inflation. Pay staff more and prices go up, as before.

        By the way, the boiling point of water varies according to air or steam pressure, as you will find outgoing up a mountain or using a pressure cooker.
        Pressure could be likened to inflation and boiling point to wages.

        1. Jerry
          March 28, 2017

          @stred; The boiling point of water does not very, as set out by IUPAC, to which all other reference points are made, otherwise it would be conjecture that water boils at a different temperature up a mountain or when heated in a pressure cooker.

          Those who try and deign that Sterling dropped like a lead balloon in the days and weeks after the referendum result are akin to those politicians who kept trying to rest their ZWL currency, before having to finally having to admit defeat – will it take hyper-inflation here in the UK before some will admit to the unwelcome side of Brexit and thus deal with it?

  2. Lifelogic
    March 26, 2017

    And this despite having interventionist, tax borrrow and waste, greencrap pushing, vanity project pushing socialists (in all but name) in charge

    I see that Osborne’s pathetic fudge over IHT with the complex £100K extra allowance comes in on 6th April but you might need to rewritten you will. So yet more pointless jobs for parasites are created. This however just as they introduce IHT2 the probate tax. Yet they wonder why ratters like Hammond and Osborne and politician in general are held in such contempt. Is the foolish Osborne really going to cling on to his MP’s salary? Thus damaging the reputation of MP and the Tory party further. May needs to intervene and tell him where to go.

  3. Mark Hodgson
    March 26, 2017

    I don’t totally agree with your conclusion as to why people are spending more.

    IMO some people are borrowing more because it is so cheap to borrow money which in the long-term they won’t be able to afford. If they are spending those borrowings on routine rubbish in the shops, rather than on sensible long-term investments, like owning a home, that is undoubtedly not a good thing.

    Others are spending their accumulated capital because with interest rates so low for so long, they have now concluded there is no point in saving. When savers have no money left, that will also be a bad thing.

    The Bank of England’s interest rate & QE policy is not a good thing. In due course it will demonstrably have caused far more problems than it solves – savers with no capital left; borrowers with unsustainable debt; and house prices out of the reach of most young people. What then?

    1. Caterpillar
      March 26, 2017


      A new house is investment, existing properties are just consumption like rent or anything else that provides a service now. If people choose to consume clothes or accommodation there should be little difference if the market is working. Nonetheless I agree with your conclusion that the market is not working due to current monetary system and what the BoE and Govt do within it.

    2. alan jutson
      March 26, 2017


      I certainly tend to agree with many of your points, including the “may as well spend it now” and thus enjoy the fruits of it before you are too old to enjoy it, because there is little point in holding onto savings which are devaluing year on year for use at a later date.
      Thus we are spending considerable sums on improving the house (earlier than originally planned) and having more holidays than normal, taking advantage before prices rise further, and the spending power of savings depleat over time.

      Think many others may be doing the same thing.

  4. Bert Young
    March 26, 2017

    Yesterday Deustche stated that the £ would fall dramatically in value against both the $ and the Euro . It largely attributed the £’s devaluation to the after effects of Brexit . However Deutsche still plan to create another HQ in London .

    Whether their statement was timed to the gathering in Rome I’ve no idea , but it still raised some doubts in my mind . The sooner the air is cleared and the negotiations begin , the better . The bottom line is we have nothing to lose and much to gain providing we remain optimistic and resourceful . I want to show to the world that we remain successful and the EU is a defunct body .

  5. Mike Stallard
    March 26, 2017

    Nice analysis! That is how it seems right out here north of Watford.

  6. acorn
    March 26, 2017

    Real (inflation adjusted) average weekly earnings, are still 4.5% less than they were in September 2007.

    From July 2014 to November 2016, the divergence in the amount spent and volume bought suggests that consumers began to buy more products during a period of 29 consecutive year-on-year price falls. January 2017 saw the first fall in year-on-year growth in the quantity bought since April 2013 and the first fall in the amount spent since January 2015, which coincided with a rise in average store price, suggesting that consumers are buying less in department stores as prices increase. (ONS)

    As I said last year, the Brexit / currency affects, if any, would start showing in Q2 of 2017. A lot of what we import is invoiced in US Dollars. The seller gets the currency he wants or there is no transaction.

    1. acorn
      March 26, 2017

      Back in 1983, when the Labour party was also letting down the nation, Gerald Kaufman MP famously described its manifesto as “the longest suicide note in history”.

      According to Labour peer David Lea, the 137-word article 50 bill – passed, to its eternal shame, by the House of Commons – is “the shortest suicide note in history”. (William Keegan’s In My View.)

    2. a-tracy
      March 27, 2017

      acorn – are they adjusting the hours people are now working each week for the average weekly wage comparison? It would be better to compare the inflation adjusted hourly rates of pay rather than just the weekly wage comparison which isn’t a true comparison due to the effect of the full adoption of the Working Time Directive.

      It’s interesting you used 2007 as the comparison date because that’s when the effects of the ‘Working Time Directive’ were really biting, as the horizontal amending directive was ended towards the end of 2005. Millions of employed people lost out in overtime as businesses readjusted and thanks to better management and smart working achieved the aims of the WTD to reduce longer working hours. So if you have millions more people doing a lot less hours each you will have a lower weekly average wage when comparing and surely this was the political aim to be congratulated rather than seen as a bad thing.

  7. Anonymous
    March 26, 2017

    The BBC would have it that people are having a last spree before Brexit doom.

  8. Antisthenes
    March 26, 2017

    One thing remain are right about we will not know how our economy will fare immediately after Brexit. Much will depend on what type of exit we opt for. If it is a clean break then I have no doubt that in the medium to long term being unfettered from the suffocating embrace of the EU the UK will do exceedingly well. In the short term many dangers abound as the transition will throw up a slew of practical problems. New procedures and systems will be need to replace the old ones. The public sector is not good at improvisation and adaption so there will be numerous cock ups, so erratic economic behaviour, which remainers will jump on and use as a vindication of their anti-Brexit stance. “We told you so” will be a common refrain.

    EU lite will avoid this problem but the UK will not gain much economic advantage and the long term prospects will be no better than they are now. Bleak. Certainly some powers will be returned but still subject to oversight by Brussels and the ECJ. Union will still be a possibility as though we may be told we that we have no further obligations on that Brussels will just wait for the right time to suck us back in. The installation of of a europhile UK government is the most obvious means and as the left is predominately europhile a future Labour government or it’s like will provide that means.

  9. Jason wells
    March 26, 2017

    All of this retail activity could also be happening because people want to buy before the full effects of brexit takes hold- maybe it could be nothing more than the normal cyclical events of life mixed with a lot of panic buying.

  10. oldtimer
    March 26, 2017

    It looks as though, after the recent rise, that oil prices will either plateau or come under more pressure from US shale production. The Saudi attempt to kill US shale producers does not seem to have worked as the latter have continued to innovate, thereby reducing their break even points, and bringing new capacity on line in the remarkably short period of eight months. US competitive pressure will surely increase if and when US producers are able to export. There is a good chance that the effect of the oil price rise will then cease to impact the inflation index.

  11. Jack
    March 26, 2017

    You say retail sales of 7% is “unsustainable”. Nonsense. That’s actually quite low compared to what we’re capable of. Retail Sales in Ireland wetr around 10% from late 2013 to late 2015, thanks to weak Euro boosting demand. China too has had far higher than that.

    1. Jack
      March 27, 2017

      Chinese total industrial profits up by 31.5%. Is JR still going to ignore the success of Keynesian fiscal policy (albeit in China’s case the stimulus has largely been through state bank lending, but it’s exactly the same thing as fiscal deficit spending)?

      Or is the UK consigned to stagnation?


      Reply UK profits also going up at the moment. China has a long way to catch up on living standards, and runs a much lower state debt and deficit than we do.

      1. Jack
        March 27, 2017

        Reply to reply – China’s deficit is *far* larger than the UKs, and has been for decades, if you count state bank loans as deficit spending (which they essentially are, since they just get rolled over).

        And also it’s worth noting that large amounts of deficit spending can grow GDP even faster than the state “debt” grows, so as a proportion of GDP the national “debt” falls! This is usually the case in countries with younger populations as they are more likely to spend the extra income rather than save, so you get a stronger multiplier effect.

        Not that having less govt debt to GDP matters, if anything a higher state debt to GDP (net private saving to GDP) is preferable to a lower one!

  12. Denis Cooper
    March 26, 2017

    There are three charts on page 23 here:

    The pound peaked against the dollar in the summer of 2014 but continued to rise against the euro for another year or so, and the sterling trade weighted index peaked about a year later in 2015; so while the EU referendum certainly gave the pound a significant jolt the overall downwards trend had actually started long before that, in fact long before it was even certain that there would be an EU referendum.

  13. Lifelogic
    March 26, 2017

    Ministers keep saying how we have “the best police and security service in the World”. Perhaps this is true, but the more I consider it the more I think that the lack of armed police as the first line of defence at this gate was totally incompetent. Only the fortuitous fact that the Defence Secretary’s protection officers were there saved the day, and this was only one mad man with a knife. Attacking perhaps the most likely target in London.

    Then again they think the NHS is the envy on the World too.

  14. Denis Cooper
    March 26, 2017

    The Sunday edition of the Reactionary Times is carrying on with their campaign to weaken the government’s position and so undermine Brexit. I’m not sure whether they still think they can stop it, or they are trying to make sure that we end up with the worst possible deal and so we then decide to crawl back asking to be readmitted to the EU. I also see that the Labour party (or at least part of it) is now insisting that our new trading arrangement with the EU must provide the “exact same benefits” as we supposedly enjoy now or they will vote against it. And some of those who were previously very much in favour of leaving the EU are now giving aid and comfort to the other side simply because Theresa May is failing to adopt their preferred detailed multi-stage plan for how we make our exit. I have to say that the decision to leave the EU having been made, and soon to be formally notified, some of this deliberately destructive criticism is coming close to disloyalty to the country.

    1. Anonymous
      March 26, 2017

      That’s putting it extremely mildly.

  15. Eh?
    March 26, 2017

    In short, few voters, the majority of whom have their heads on their shoulders, are paying even the slightest regard to Remoanology. Because: the Remainers lost. No-one wishes to be associated with Losers,(… the utterly losing team… ). Because their message is incoherent and lost.

  16. Denis Cooper
    March 26, 2017

    Checking BrexitFacts4EU this morning, as one does routinely because it is such an excellent source of information, analysis and commentary:

    I saw that they had provided links to a whole bundle of EU “Factsheets” on various topics issued alongside the birthday declaration, and so naturally I homed in on the one on the Single Market to see whether the EU was repeating its previous boasts about its huge benefits – originally projected as a gain of about 5% on the collective GDP of the member states, but actually more like 2%, and for the UK only about half of that, with the number of jobs created across the EU being claimed as 1% – 2% of total jobs – but found that it is only talking about the huge potential future benefits of completing the Single Market, those potential future benefits that Cameron was always banging on about.

    “A fully functional Digital Single Market could contribute €415 billion a year to the EU’s economy and create hundreds of thousands of new jobs.”

    OK, so that is the projection, and as before the reality will probably fall far short of that, but just taking that €415 billion it would be an extra 2.5% on the combined GDP of the EU member states, €16.5 trillion, while taken literally “hundreds of thousands of new jobs” would be at most 0.5% of the total number of people employed across the EU, which was 223 million in 2008.

    I am not saying that we should turn our noses up at these marginal improvements in prosperity, if they materialised, but we should recognise a) that they are marginal – JR says above that he predicts 2% economic growth in each of 2016 and 2017, but the long term trend growth rate back to the 1950’s has been 2.5% a year – and b) that they come at a price, both an the economic and a political price.

  17. APL
    March 26, 2017

    JR: “now joined me in expecting around 2% growth in 2016 and 2017”

    So you claim the economy has expanded by 2% in this article?

    Yet in this article you point out that the yardstick used to measure the economy, sterling, has contracted by 2.3%

    So in fact the economy may have grown by only 0.3% 2016/17 which isn’t quite so impressive after all.

    Reply Growth is measured in local currency

    1. APL
      March 28, 2017

      APL: “Growth is measured in local currency”

      In your article I referred to, you cited the UK inflation rate at 2.3%. Are you suggesting that was some exotic currency, if so, you should have mentioned that in your article. Last I heard, sterling was our local currency.

  18. nigel seymour
    March 26, 2017

    J, Come next Wednesday when the PM triggers A50 it will be open season for remainers to launch their bid to keep the UK in the EU. I don’t doubt there will be forthcoming HC cases and SC appeals and the BBC will continue to ramp up their anti-brexit rhetoric along with the Dems and SNP. With regard to inflation , this is the only means by which my private pension will realise a increase! I thought the BoE were quite happy with circa 2-2.5% as it keeps the economy in balance!!

    1. Anonymous
      March 26, 2017

      Well let’s hope Gina Miller doesn’t have other ideas before Wednesday.

  19. ian
    March 26, 2017

    Its all meaningless, there is no way of telling if its growth or just inflation, at the moment real inflation 4.4% factory inflation is 3.7%, RPI at 2.8 and CPI at 2.3 and growth is 2%, what see at the moment 5 bags of crisps in a bag instead of 6 bags, so its a case of cut the amount you get or put the price up and then people rushing out to buy cars before the tax goes up, more people coming into the country for holidays or to stay, as far as i am concerned growth has been slipping on and off for 17 years that is real growth, you see 2% growth with inflation at the smallest level of 2.3 means that growth is down 0.3% and most the price rise is inflation and has the case now for long time apart from like the last two year where inflation was about 0% and growth was over 2 % that’s growth but even then you can tell what going on because in that time house price went up 17% and went by 10% to 13% and they do not like low inflation because bad for but good for poor and middle class people, it help to inflation the government debt away and that all they care about.

  20. ian
    March 26, 2017

    The only reason g osborne is hanging about parliament is because he is making a bid to be the next leader of the con party, that why they put in charge of a newpaper to give him high profile, where write about what he want to do, he now the leader of the liberal in the con party and they make up over 85% of the party, should be a treat for you all.

  21. Dennis Zoff
    March 27, 2017

    Hello John,

    I am surprised my last two comments were deleted….did I break some house rule?

    …..yet you appear happy to allow Newmania’s negative Brexit comments to remain…quite a puzzle?

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