• The Bank of England will draw some comfort from signs that consumers took the initial shock of the Brexit vote in their stride
• Last week’s first official data covering the post-referendum period has shown no immediate big hit to the UK economy but economists caution that the early readings offer only a narrow snapshot view.
• Retail sales volumes surged by 1.4% in July compared with June and were better than all forecasts in a Reuter’s poll that pointed to a much smaller average rise of 0.2% for the month.
• Rising fuel prices helped push the UK’s annual inflation rate higher in July as measured by the Consumer Prices Index (CPI) which rose to 0.6% in July from 0.5% in June.
• Sterling’s depreciation ensured that pump prices rose by 0.7% month-to-month and as a result most economists continue to think that CPI inflation will hit 3.0% in the second half of 2017.
• Although public finances generated a £1.0 billion surplus in July, the surplus was lower than both the £1.9 billion predicted by economists and the £1.2 billion achieved in July last year.
• Royal Bank of Scotland has advised its biggest business customers that it would begin charging to deposit their cash.
• There was little movement in the ITRAXX Europe Senior Financials 5-year CDS index and the FTSE 350 Bank over the week as many financial markets remain in a quiet period over the summer holidays.
The Bank of England (BoE) will draw some comfort from signs that consumers took the initial shock of the Brexit vote in their stride but will see little to lessen the concern that prompted its recent huge stimulus announcement. Last week’s first official data covering the post-referendum period has shown no immediate big hit to the UK economy as retail sales surged in July and claims for unemployment benefits fell. Sterling also hit a two-week high against the dollar raising questions about the likelihood of a further interest rate cut. But economists caution that the early readings of the UK economy offer only a narrow snapshot view compared with the years of economic uncertainty ahead as the UK reworks its relationship with its main EU trading partners.
Retail sales figures from the Office for National Statistics (ONS) jumped by much more than expected in June with warm weather boosting clothes sales while weaker sterling tempted overseas buyers to splash out on luxury items. These figures represent the first official data to shed light on how consumer demand has performed since the unexpected Brexit decision. Retail sales volumes surged by 1.4% in July compared with June and were better than all forecasts in a Reuter’s poll that pointed to a much smaller average rise of 0.2% for the month.
Rising fuel prices helped push the UK inflation rate higher in July according to ONS official figures. The annual inflation rate as measured by the Consumer Prices Index (CPI) rose to 0.6% in July from 0.5% in June. Input prices faced by manufacturers rose by 4.3% in the year to July compared with a fall of 0.5% in the year to June. The largest rises came in the cost of imported food materials which rose by 10.2%, and the price of imported metals which rose by 12.4%. Against the dollar, sterling is some 13% below its level in the run-up to the referendum and 10% lower against the euro. Sterling’s depreciation ensured that pump prices rose by 0.7% month-to-month even though dollar oil prices declined. As a result, most economists continue to think that CPI inflation will hit 3.0% in the second half of 2017.
Although public finances generated a £1.0 billion surplus in July, the figure was lower than expected. This was the first full month’s figures published after the UK voted to leave the EU. July is usually a good month for the Treasury because of corporation tax payments on large companies’ expected profits and the second set of self-assessment payments. Corporation tax was also boosted in July by the first payment of a new 8.0% levy on the profits of banking companies. However the surplus was lower than both the £1.9 billion predicted by economists and the £1.2 billion achieved in July last year.
Royal Bank of Scotland (RBS) has advised its biggest business customers that it would begin charging to deposit their cash. Some of its largest investment banking clients will have to pay interest on their trading accounts as it could no longer afford not to charge customers after the Bank of England’s interest rate cut. In a letter to corporate customers, RBS said they would be hit with negative interest rates on sterling and euro deposits from Monday, 22nd August making it the first big UK lender to react in this way to the recent 0.25% cut in the cost of borrowing. The charge will affect RBS’s biggest corporate clients, such as the finance departments of large companies that use the bank as a broker to trade in the futures and options market as part of their hedging operations.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Date:||22nd August 2016|
|5-Year CDS Spreads (bps)||Equity Share Prices (LCL)|
|Parent: Aldermore Group plc|
|Aldermore Bank plc||n/a||n/a||n/a||1.32||1.41||-6.4%|
|Allied Irish Banks||59||61||-3.3%||6.40||6.80||-5.9%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||16.18||16.18||0.0%|
|Aust and NZ Banking Group Ltd||68||69||-1.4%||26.68||26.56||+0.5%|
|Banco Bilbao Vizcaya Argentaria S.A.||114||120||-5.0%||5.09||5.27||-3.4%|
|Parent: Barclays plc|
|Barclays Bank plc||91||93||-2.2%||1.60||1.63||-1.8%|
|BNP Paribas S.A.||71||71||0.0%||42.58||44.68||-4.7%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||13.43||13.42||+0.1%|
|Credit Agricole S.A.||70||70||0.0%||7.92||8.25||-4.0%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||126||128||-1.6%||21.86||21.58||+1.3%|
|Deutsche Bank AG||202||197||+2.5%||11.95||12.75||-6.3%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||70||71||-1.4%||5.43||5.45||-0.4%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||61||61||0.0%||10.44||10.58||-1.3%|
|Intesa Sanpaolo S.p.A.||119||122||-2.5%||1.83||1.98||-7.6%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||4.95||4.96||-0.2%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||81||82||-1.2%||0.55||0.55||0.0%|
|Metro Bank plc||n/a||n/a||n/a||23.90||22.99||+4.0%|
|Nationwide Building Society||85||88||-3.4%||n/a||n/a||n/a|
|Nordea Bank AB||65||65||0.0%||77||79||-2.5%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||109||112||-2.7%||1.88||1.96||-4.1%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||82||83||-1.2%||3.64||3.84||-5.2%|
|Shawbrook Group plc||n/a||n/a||n/a||1.88||1.98||-5.1%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||110||113||-2.7%||6.25||6.57||-4.9%|
|Svenska Handelsbanken AB||61||61||0.0%||105||108||-2.8%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||3429||3468||-1.1%|
|SNR FIN ITRAX CDS 5-YEARS (ESTIMATED)||89||87||+2.3%||n/a||n/a||n/a|