U.K. CBI realized sales rise to 3-month high in July
U.K. retail sale volumes rose to a three-month high in July, fuelling optimism over the health of the country’s economy, industry data showed on Wednesday.
In a report, the Confederation of British Industry said the result of its index of U.K. retailers improved by 17.0 points to a reading of 21.0 this month from 4.0 in June. Analysts had expected the index to increase by 12.0 points to 16.0 in July.
On the index, a reading above 0.0 indicates higher sales volume, below indicates lower.
Retailers expect sales volumes to grow at an even stronger pace next month and stocks in relation to expected demand rose, most likely in anticipation of this stronger sales growth.
Barry Williams, Chair of the CBI Distributive Trades Survey Panel said, “As the temperature began to rise, it seems so did sales volumes. Almost all sectors saw growth, with grocers and clothing stores telling us they performed particularly well as people bought barbeque supplies and summer outfits.”
Following the release of that data, the pound held on to modest losses against the U.S. dollar, with GBP/USD shedding 0.12% to trade at 1.7045.
The pound trimmed losses against the U.S. dollar on Wednesday, but remained near three-week lows as events in Ukraine and the Gaza Strip continued to dominate investors' attention.
GBP/USD pulled away from 1.7024, the pair's lowest since June 30to hit 1.7050 during U.S. morning trade, still down 0.09%.
Cable was likely to find support at 1.7009, the low of June 30 and resistance at 1.7100, the high of July 21.
Investors remained cautious after the European Union threatened Russia on Tuesday with harsher sanctions over Ukraine, while fighting in the Gaza Strip continued.
Earlier Wednesday, the minutes of the Bank of England’s June meeting showed that the decision on whether to raise interest rates has become more balanced for some policymakers in recent months than earlier in the year.
However, the minutes also said weakness in wage growth is becoming more “striking”, particularly given that the annual rate of inflation rose to 1.9% in June. Weak wage growth in the face of strong employment growth made it difficult to gauge the degree of slack in the labor market, the minutes said.
Some members of the monetary policy committee were concerned that raising rates too early could destabilize the recovery, given recent signs of weakness in the global economic recovery.
Separately, a report showed that mortgage approvals in the U.K. rose broadly in line with expectations in June.
The British Banker's Association reported that the number of new mortgages approved increased to 43,300 last month from May’s revised total of 41,900, just below forecasts of 43,400.
BoE's Carney Sees Need For Rate Rise As Economy Returns To Normal
Bank of England Governor Mark Carney said on Wednesday that interest rate will have to start rising to maintain price stability as the economy normalizes.
"As the economy normalizes, Bank Rate will need to start to rise in order to achieve the inflation target," Carney said in a speech in Glasgow, Scotland.
"But the MPC has no pre-set course and the timing of any increases in interest rates will be determined by the data."
Policymakers are studying how the strengthening economic recovery and the mixed signals over the degree of slack in the labor market will impact inflation, the central bank chief said.
"The Monetary Policy Committee (MPC) is balancing the implications for inflation of hard evidence of sustained economic momentum against conflicting signals over the degree of slack in the labor market," Carney said.
The minutes of the July meeting, released earlier today, revealed that policymakers unanimously decided to maintain the key interest rate and quantitative easing, but signaled the possibility of a rate hike late this year as growth became more established.
Carney pointed out that the spare capacity is being consumed more rapid than the bank had expected even as wages indicate more labor supply than had previously thought.
The Monetary Policy Committee is trying to determine to what extent these will translate into real wage growth and feed into price pressures, he said. The bank's view will be revealed in the August Inflation report, he added.
"The MPC is supporting investment through clear guidance that it expects increases in Bank Rate, once they begin, to be gradual and limited," Carney said. "This is in part because the headwinds facing the economy are likely to take some time to die down."
The headwinds include public balance sheet repair, a highly indebted private sector, as well as the drag from strong currency and the weak demand from main export markets, he explained.
Further, Carney said even when spare capacity is used up, the Bank Rate will need to be remain materially lower to keep the economy operating at its potential and inflation at its target.
Continued imbalances between global saving and investment as well as lower rates of global productivity growth could keep UK rates lower, he said.
"The MPC can also be expected to accommodate with lower risk-free rates the higher spreads that are likely to result from new regulatory requirements," Carney said.
Drawing attention to the risks of a prolonged period of record low interest rates, Carney said the biggest risks are linked to the housing market.
UK retail sales strongest in 10 years in second quarter, June +0.1 percent month-on-m
British retail sales volumes in the second quarter were the strongest in 10 years, although they stagnated last month, official data showed on Thursday.
Retail sales volumes rose 1.6 percent between April and June compared with the previous three months, the strongest calendar quarter since early 2004, according to the Office for National Statistics.
But they rose just 0.1 percent in June from May and by 3.6 percent compared with the same month a year ago.
That was slightly weaker than economists' forecasts in a Reuters poll for increases of 0.3 percent and 3.9 percent.
Second-quarter sales were boosted by a 1.0 month-on-month jump in April, which more than offset a fall in May.
Comparing the second quarter with the same period last year, sales were up 4.5 percent, the strongest calendar quarter since the end of 2004, the ONS said.
Britain's consumers have been the main driver of the country's economic recovery which began last year, helped by low levels of inflation - despite a surprise surge last month - that has eased the pressure on their spending power.
Wage growth, however, remains very weak.
Prices in stores were flat last month, the first time they have not fallen since January.
An ONS official said an annual 2.0 percent increase in prices for the textiles, clothing and footwear sector was unusual given that retailers normally cut prices during the month.
The last time clothing prices rose in the month of June was in 2007.
A survey from the Confederation of British Industry on Wednesday showed British annual retail sales growth quickened in July and that expectations for August also picked up.
Retail sales account for just under 6 percent of British gross domestic product.
Economists expect data on Friday to show GDP grew by 0.8 percent in the second quarter, unchanged from the first three months of the year.
However, they also see a risk of a lower growth rate after industrial output figures were weaker than expected in May.
The U.K. economy expanded as expected in the second quarter underpinned by services and manufacturing, data showed Friday.
Gross domestic product grew 0.8 percent sequentially in the second quarter, the same rate as seen in the first three months of the year, preliminary data from the Office for National Statistics said today.
The growth figure also matched economists' expectations. GDP was estimated to be 0.2 percent above the peak in the first quarter of 2008.
GDP grew 3.1 percent from the same quarter a year ago, also in line with forecast.
The production side breakdown of GDP showed 1 percent quarter-on-quarter increase in services and 0.4 percent expansion in production. Meanwhile, construction fell 0.5 percent and agriculture dropped 0.2 percent.
Another report from ONS showed that services output advanced 3.3 percent year-on-year in May. On a monthly basis, services output climbed 0.3 percent, it said.
U.K. Q2 GDP Growth Stable At 0.8%; Returns To Pre-Crisis Level
British economic growth remained high as expected in the second quarter as a robust expansion in the dominant service sector, and industry completely offset the slight weakness in the construction sector. With the second quarter expansion, GDP returned to its pre-crisis level.
Gross domestic product grew 0.8 percent sequentially in the second quarter, the same rate as seen in the first three months of the year, preliminary data published by the Office for National Statistics showed Friday. The growth figure matched economists' expectations.
GDP was estimated to be 0.2 percent above the peak in the first quarter of 2008. According to the ONS, the economy shrank by 7.2 percent from the peak to trough in 2009.
In the second quarter, GDP grew 3.1 percent from the same quarter a year ago, which was also in line with forecast.
The production side breakdown of GDP showed that quarter-on-quarter growth in the service sector rose to 1 percent from 0.8 percent in the first quarter. The industrial production growth slowed to 0.4 percent from 0.7 percent. Within in industry, manufacturing output was up 0.2 percent.
On the other hand, construction output fell 0.5 percent, reversing the prior quarter's strong 1.5 percent increase. Likewise, agriculture output dropped 0.2 percent versus the 1 percent rise a quarter ago.
Another report from the ONS showed that services output advanced 3.3 percent year-on-year in May. On a monthly basis, services output climbed 0.3 percent, it said.
Samuel Tombs, a senior UK Economist at Capital Economics said he remains optimistic on the scope for the UK economy to maintain its current growth spurt. The economy is likely to experience another couple of years of robust growth and only gradual rises in interest rates, he said.
The Ernst & Young ITEM Club said early this week the U.K. will post the strongest growth among the G7 nations as investment from firms is set to surprise on the upside. The think tank lifted its 2014 GDP outlook to 3.1 percent from 2.9 percent.
In the World Economic Outlook, released Thursday, the International Monetary Fund upgraded its GDP growth outlook for the U.K. to 3.2 percent from 2.8 percent and the estimate for 2015 to 2.7 percent from 2.5 percent.
Bank of England Governor Mark Carney on Wednesday said the interest rate will have to start rising to maintain price stability as the economy normalizes. Policymakers have no pre-set course and the timing of any increases in interest rates will be determined by the data.
Commenting on the second quarter GDP data, IHS Global Insight's Chief UK Economist Howard Archer said the ongoing robust GDP growth in the second quarter very much keeps open the possibility that the BoE could raise interest rates before the end of 2014, although it remains a very close call and much will clearly depend on how well growth holds up over the coming months and what happens with earnings growth.
James Knightley, an economist a ING Bank NV said the BoE will end up tightening monetary policy sooner rather than later with November being the favored date for the first rate hike.
The GBP/USD pair fell during the course of the week, breaking through the 1.70 handle. However, there is significant support all the way down to the 1.69 level, which could bring the buyers back into the marketplace as we are most certainly still in an uptrend. The support at that area should send market back to the 1.72 handle though, and perhaps even the 1.75 level given enough time. Don’t really have any interest in selling this market, at least until we get below the 1.67 handle which would show a significant breakdown in the upward momentum.
GBP/USD took a tumble last week, as the pound coughed up over a 100 points and slipped below the 1.70 level. The pair closed the week at 1.6964. This week’s highlight is Manufacturing PMI. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.
British releases were positive last week, led by GDP which posted a strong gain. However, the US dollar was broadly stronger last week, thanks to strong readings from US employment, housing and manufacturing data.
Net Lending to Individuals: Tuesday, 8:30. This indicator is closely related to consumer confidence and spending, as increased spending is indicative of a consumer who is optimistic about the economy and in a spending move. The indicator improved to GBP 2.7 billion last month, above the estimate of GBP 2.5 billion. Little change is expected in the upcoming release.
GfK Consumer Confidence: Wednesday, 23:05. Consumer Confidence has been climbing throughout 2014. In May, the indicator punched above the zero level, which marks optimism, with a reading of 1 point. The markets are expecting the upward swing to continue, with an estimate of 2 points in the June reading.
Nationwide HPI: Thursday, 6:00. This housing inflation index is an important gauge of activity in the UK housing sector. The index impressed in May, posting a strong gain of 1.0%. This easily beat the estimate of 0.6%. The estimate for the June release is unchanged, at 0.6%.
Manufacturing PMI: Friday, 8:30. This is the major event of the week. The index continues to post readings in the high-50 range, pointing to solid expansion in the manufacturing sector. The May reading of 57.5 was the best showing this year and well above the estimate of 56.7 points. Another strong reading is expected this time around, with the estimate standing at 57.2 points.
Pound Close to One-Month Low as Speculators Pare Bullish Bets
The pound was about 0.1 percent from the lowest level in a month against the dollar as hedge funds and other large speculators reduced their bullish bets on sterling to the least since March.
Profit warnings by U.K. companies in the first half rose the most since 2012 as sterling’s world-beating rally weighed on earnings, according to a report by EY, the consulting firm formerly known as Ernst & Young LLP. The pound has surged 11 percent in the past year, making it the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. U.K. government bonds fell.
“A lot of good news is baked in the cake as far as sterling is concerned,” Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney, said in an interview on Bloomberg Television’s “On The Move” with Rishaad Salamat. “For the time being at least it looks as if in a lot of those long positions in sterling there may be a rush for the exit.”
The pound was little changed at $1.6986 as of 10:59 a.m. London time after falling to $1.6962 on July 25, the weakest since June 25. The U.K. currency dropped the most since March last week. Sterling was little changed at 79.10 pence per euro.
Bets on an advance in the pound exceeded those wagering on a decline by 27,497 contracts in the week ended July 22, down from 38,770 a week earlier, the latest Commodity Futures Trading Commission data show. They climbed as high as 56,412 in the week through July 4, the most since 2007.
Ten-year gilt yields rose two basis points, or 0.02 percentage point, to 2.59 percent. The rate slid to 2.54 percent on July 23, the lowest since June 2. The 2.25 percent bond due September 2023 fell 0.165, or 1.65 pounds per 1,000-pound face amount, to 97.25.
GBP/USD gains on disappointing U.S. pending home sales report
The pound rose against the dollar on Monday after industry data revealed pending home sales in the U.S. dropped in June, defying market calls for a gain.
In U.S. trading on Monday, GBP/USD was trading up 0.08% at 1.6990 up from a session low of 1.6972 and off a high of 1.7001.
Cable was likely to find support at 1.6962, Friday's low, and resistance at 1.7095, Wednesday's high.
The dollar softened on Monday after the National Association of Realtors reported that U.S. pending home sales fell 1.1% in June, disappointing expectations for a 0.5% gain.
"Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved," NAR chief economist Lawrence Yun said in a statement.
"However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates."
The data sent investors selling the greenback for profits ahead of the Federal Reserve's policy statement on Wednesday and the July jobs report due out on Friday.
The dollar firmed last week on upbeat durable goods, weekly jobless claims and new home sales reports, though Monday's home sales data prompted investors to take a breather with the U.S. currency.
Investors were also awaiting final data on U.S. second-quarter growth on Wednesday.
Meanwhile across the Atlantic, the pound continued to see support after preliminary data on Friday revealed that the gross domestic product rose 0.8% in the second quarter, in line with market expectations, which gave the pound some support.
Elsewhere, sterling was flat against the euro, with EUR/GBP down 0.01% at 0.7911, and up against the yen, with GBP/JPY up 0.08% at 173.00.
On Tuesday, the U.S. is to publish reports on house price inflation and consumer confidence.
U.K. mortgage approvals increased more-than-expected to a 4-month high in June, recovering from a temporary slowdown caused by mortgage lending regulations.
After four months of decline, approvals for house purchases increased to 67,196 in June from 62,007 in May, the Bank of England data showed Tuesday. It was forecast to rise to 63,000. The latest figure was the highest since February.
The International Monetary Fund on Monday advised the U.K. to tighten its monetary policy if new regulations introduced to contain overheating in the housing market prove ineffective.
The Bank of England may need to consider raising interest rates in case macroprudential measures prove insufficient to deal with financial stability risks from the housing market, the Washington-based lender said.
Drawing attention to the risks of a prolonged period of record low interest rates, BoE Chief Mark Carney last week said the biggest risks are linked to the housing market.
Today's data suggests that Mortgage Market Review, introduced in April had a temporary effect on the property market.
According to British Bankers' Association, loans approved for house purchases increased to a 3-month high of 43,265 in June from revised 41,881 in May.
Mortgage lending is likely to rise at a slow but steady pace over the rest of the year, said Matthew Pointon, a property economist at Capital Economics. In turn, that is consistent with further gains in house prices, although at a slower pace than that seen over the past 12 months, he added.
Total lending to individuals increased GBP 2.5 billion from May, BoE reported. Within the total, lending secured on dwellings climbed at a slower pace of GBP 2.1 billion in June, after rising GBP 2.3 billion in May. On a yearly basis, secured lending grew 1.5 percent.
At the same time, consumer credit grew only GBP 0.4 billion after rising GBP 0.7 billion. Annually, growth remained unchanged at 5.3 percent in June. On the other hand, lending to businesses decreased by GBP 3.4 billion, in contrast to last month's GBP 2.3 billion increase.
IHS Global Insight's Chief UK Economist Howard Archer said the renewed, sharp fall in net lending to businesses looks both disappointing and worrying as it is vitally important for sustained and balanced UK growth.
Despite the overall sharp drop in net lending in June, net lending to small and medium-sized enterprises rose by GBP 235 million.
The monetary aggregate M4 rose 0.1 percent in June from May when it fell by 0.1 percent. On a yearly basis, M4 was down 0.6 percent versus a 0.8 percent drop a month ago.