UK earnings revisions recover, inflation outlook improves
Simon Ward
Post a Comment
The additional 29 April bank holiday has complicated interpretation of recent UK statistics, which have consequently received limited coverage here. Purchasing managers' surveys for June to be released over 1-5 July will provide important guidance about the state of the economy. One hopeful sign is that revisions to analysts' forecasts for company earnings have been balanced over the last month, following net downgrades in May. The PMIs correlate with earnings revisions – see first chart.
Last week's public finance numbers evoked much gloom about fiscal prospects. Borrowing in April and May combined was £1.5 billion higher than a year before but the comparison is distorted by the £3.5 billion bank payroll tax paid in April 2010. A six-month moving average of seasonally-adjusted borrowing continues to decline slowly – second chart. The recent rate of improvement, if sustained, implies a deficit of £125-30 billion in 2011-12, above the OBR's £122 billion forecast but down from £143.2 billion in 2010-11.
A previous post suggested that CPI inflation would undershoot the Bank of England's mean prediction of a rise to 5.0% in the third and fourth quarters of 2011. This prospect has been strengthened by the recent reversal in wholesale energy prices, which should result in a significant decline in motor fuel costs – third chart – while tempering coming utility price rises. The fuel effect is likely to shave 0.2% from the CPI relative to its May level, based on an unleaded price of £1.30 per litre (motor fuel has an index weight of 4.3%).
View Printer Friendly Version
Email Article to Friend
Reader Comments