20 November 2017

Waiting on the red despatch box

Markets have continued in a quietish mood, despite much going on in the background. The recent UK inflation figures had little impact, other than on sterling.


The very slightly below consensus rise in the Consumer Price Index (CPI) of 3% saw the pound fall against the euro as a further interest rate rise was pushed further into the distance, though the better than expected economic growth figures from Germany were probably just as important.

Germany seems to be powering ahead, helped by stronger consumer demand and the benefits of capital spending. They are not alone, though, with the single currency zone economies at last playing catch up with the rest of the world. Indeed, the IMF recently referred to Europe as a major engine for growth in the world economy. Even Italy seems to be turning itself around, recording the best quarterly growth numbers for seven years recently.

Back home our unemployment figures disclosed the number of jobless at a 42 year low, while details of how average earnings are progressing in the UK showed that for the past seven months they have lagged the inflation rate. But productivity here remains a problem, with France, Germany and the US all well ahead in these important stakes. Still, at least our trade deficit has dropped.

All of this, while interesting and informative, pales into insignificance against next week’s Budget. Quite how Chancellor Philip Hammond will deal with the opposing views of, on the one hand that we still need to balance the books, and on the other that austerity has run its course and economic regeneration through infrastructure and public services spending should now be the priority is anybody’s guess.

With little major on the horizon in the way of corporate news, though merger and acquisition activity, such as in the Tesco takeover of Bookers, continues to help sentiment, speculation on Budget measures will doubtless occupy investors’ minds in the short term. Productivity has now assumed a major importance in government thinking and no doubt the recent German economic performance will have concentrated minds. Building incentives into the Budget will not be easy, though.

Some tax increases seem inevitable, but care will have to be exercised over where they are likely to impact, given that higher inflation will be affecting the less well off the most, with rising food prices now a major component of the rise in the cost of living. These affect the poorer amongst us most, but doubtless Mr Hammond will feel the need to raise revenue somewhere. Next week should be interesting.


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