Official figures this week from the Office for National Statistics (ONS) are expected to show that growth in the UK economy has slowed in the first quarter as rising prices are expected to bring the post-referendum consumer boom to an end. Economists have forecast GDP growth of just 0.4% for the first three months of the year which is down from 0.7% in the final quarter of 2016 and the slowest rate of growth in a year. If the prediction proves to be accurate then analysts believe the figures will confirm that cracks are beginning to appear in the economy which has been far more resilient than feared after the EU referendum last June.
This more pessimistic view is supported by the latest ONS UK retail sales figures which unexpectedly fell by -1.8% in March compared with February and by -1.4% year-on-year on a quarterly basis. Economists’ consensus was for a monthly fall of -0.2%. This is the biggest quarterly fall since 2010 as the prices of every day goods continue to climb. The ONS reported that demand for all types of goods had fallen except for textiles, clothing and footwear. The biggest falls were seen in sales of household goods and petrol. The ONS said average store prices had increased by 3.3% on the year which is the highest price growth reported since March 2012. The largest contribution came from petrol where prices were up by some 16.4% on the year.
Meanwhile the International Monetary Fund (IMF) has raised its forecast for global growth in 2017 to 3.5% from 3.4% but has left its estimate for 2018 growth unchanged at 3.6% while warning of possible “disruptive factors” such as protectionism in the U.S. and maybe in France. Despite the above concerns about the UK economy, the IMF has also revised up its UK growth forecast for this year for the second time in three months after admitting that the performance of the UK economy since the Brexit vote last year has been stronger than expected. In its half-yearly World Economic Outlook the IMF stated that it now envisaged the UK economy expanding by 2.0% in 2017 – up from 1.5% three months ago – which would make the UK the second fastest-growing advanced economy after the U.S.
Michael Saunders, an external member of the Monetary Policy Committee (MPC), has hinted that UK interest rates may need to rise soon as he anticipates that economic growth and inflation are set to exceed expectations. Speaking to the Federation of Small Businesses, Mr. Saunders said that any interest rate rises would need to be limited and gradual but added that in his view such a move would not cause damage to the outlook for the UK economy. With the fall in the pound since the Brexit vote still passing through to inflation (which remained at a three-year high of 2.3% in March), Mr. Saunders believes that consumer prices were likely to increase faster than the Bank of England’s estimate of 2.75% and that CPI inflation could reach 3.0% later this year or early in the next. However he added that the sudden sharp rise in consumer prices does not mean that a post-Brexit UK will face persistently high inflation. If Mr. Saunders votes for an interest rate rise at next month’s MPC meeting he would join Kristin Forbes in looking to increase rates from their record low of 0.25% but financial markets do not expect a rise until the end of 2018.
At the International Monetary Fund (IMF) meeting in Washington, the UK Chancellor announced that the government has recovered all of the £20.3bn injected into Lloyds Banking Group to rescue the stricken lender in 2008. A full return to private ownership of the remaining 1.9% holding is expected within the next few months. However the government still owns 72% of Royal Bank of Scotland and the share sale plan has been put on hold amid warnings that the stake may have to be sold at a loss. Another £22.0bn remains held in the nationalised assets of Northern Rock and Bradford & Bingley.
The UK Ministry of Justice is seeking to join the shareholder lawsuit against Royal Bank of Scotland (RBS) over its £12.0bn rights issue in the latest escalation of the legal fight between the bank and embittered investors. The Accountant General of the Senior Court has applied to join the action before the trial next month. The ministry is said to want to represent people including children and the estates of people who have died intestate and who may not be able to pursue claims. However the application may be unsuccessful because claimants must usually launch a case within six years of when they could reasonably have found out about the offence. The RBS lawsuit began in 2008, brought by investors who had bought shares in a cash-call in that year and had lost most of their money when the bank collapsed a few months later. The investors are suing for compensation alleging that RBS did not give a proper picture of its finances. The bank has settled with four of five groups that originally sued.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Movements over the Last Week|
|Date:||24th April 2017|
|5-Year CDS Spreads (bps)||Equity Share Prices|
|ABN AMRO Groep N.V.||n/a||n/a||n/a||22.58||21.98||+2.7%|
|Parent: Aldermore Group plc|
|Aldermore Bank plc||n/a||n/a||n/a||2.35||2.28||+3.1%|
|Allied Irish Banks||55||55||0.0%||5.00||5.05||-1.0%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||14.78||14.90||-0.8%|
|Aust and NZ Banking Group Ltd||58||57||+1.8%||31.81||31.90||-0.3%|
|Banco Bilbao Vizcaya Argentaria S.A.||114||114||0.0%||7.10||6.86||+3.5%|
|Parent: Barclays plc|
|Barclays Bank plc||78||81||-3.7%||2.08||2.13||-2.3%|
|BNP Paribas S.A.||89||96||-7.3%||62.00||58.30||+6.3%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||16.49||16.16||+2.0%|
|Credit Agricole S.A.||86||93||-7.5%||12.43||11.91||+4.4%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||105||106||-0.9%||14.43||14.40||+0.2%|
|Deutsche Bank AG||127||130||-2.3%||15.57||15.13||+2.9%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||63||66||-4.5%||6.24||6.44||-3.1%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||63||63||0.0%||13.81||13.81||0.0%|
|Intesa Sanpaolo S.p.A.||155||154||+0.6%||2.51||2.44||+2.9%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||5.64||5.50||+2.5%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||68||69||-1.4%||0.64||0.63||+1.6%|
|Metro Bank plc||n/a||n/a||n/a||34.55||33.75||+2.4%|
|Nordea Bank AB||43||43||0.0%||103||101||+2.0%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||96||98||-2.0%||2.40||2.28||+5.3%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||76||78||-2.6%||5.67||5.49||+3.3%|
|Shawbrook Group plc||n/a||n/a||n/a||3.39||3.37||+0.6%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||79||81||-2.5%||6.86||7.10||-3.4%|
|Svenska Handelsbanken AB||43||43||0.0%||121||121||0.0%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||4036||4101||-1.6%|
|SNR FIN ITRAX CDS 5-YEARS (ESTIMATED)||91||94||-3.1%||n/a||n/a||n/a|