What’s coming up next week

Next week we are due several key UK data and news releases, including inflation numbers, labour market statistics, retail sales data, the minutes of the Bank of England’s Monetary Policy Committee meeting of July, and the public sector finance figures. In summary, we expect UK inflation to be broadly flat on the month, with price pressures eased by falling oil prices. Other UK data will be muddied by the effect of the Jubilee bank holiday in June, but should be consistent with a general slowdown in economic activity.

In contrast, we are not due much at all for Euroland, with the only key release expected to be the second estimate of Euroland inflation.

Looking at the UK data in more detail, in date order, on Tuesday there are the UK June Inflation CPI/RPI numbers due at 0930hrs. As indicated, oil prices have moderated substantially, and indeed are down around 20% in Sterling terms since March. This slide has continued in June, and petrol prices look to be down around 4% in June – and petrol is about 5% of the CPI basket. However, there is always an element of uncertainty over how the ONS will address the petrol changes in the CPI, and this clearly represents a risk to the forecast. Another risk is food prices, which look to have been flat on the month, but there is a risk either side to that view. In contrast to these easing pressures, core goods prices should show an increase in the yearly rate, due to base effects from the early start of summer sales in 2011. In net terms, on the monthly rate we can expect prices to be broadly flat on the month, following negative seasonally adjusted growth rates in April and May.

We are then due UK June Labour Market numbers on Wednesday 18^th July at 0930hrs. The claimant count (the number of people claiming benefits) increased in May, following two months of decreases and it can be argued that the UK labour market is behaving inconsistently, with changes in unemployment suggesting relatively strong GDP growth, while hard data remain weak, and even negative. At some stage this will need to be resolved, probably with higher unemployment, unless we see a dramatic resolution to the Euroland crisis. In the meantime, we can expect a flat claimant count to be recorded for the month, with the numbers affected by the Jubilee and, potentially, the build-up to the Olympic games. The headline unemployment rate measure for March-May should also fall, albeit that this will be mainly on the back of short-term monthly dynamics rather than underlying economic strength.

The minutes for the July Bank of England MPC meeting are also released on July 18^th. We’ll recall that at the July meeting the MPC decided to extend asset purchases under the Quantitative Easing (QE) programme by £50bn, broadly in line with market expectations. In previous cases where QE has been extended, there has been only one when the decision to increase QE has not been unanimous, which was November 2009. There have however been cases where the quantity of extra asset purchases has not been unanimous. As such, it looks as if the market view is that there were nine votes for £50bn of QE. There is clearly a risk that one or two hawkish members of the committee (perhaps Spencer Dale), voted to keep asset purchases unchanged. Conversely, it is possible that some of the more dovish members decided that £75bn, rather than £50bn would have been preferred.

We will also look at the minutes carefully for evidence that members treat QE operations, the new ECTR and the funding for lending scheme as inter-changeable substitutes or standalone independent policy tools. Any evidence that the Committee regard the policy options as part of a pick-and-mix approach to solving problems should be seen as reducing the probability of additional increases in quantitative easing.

The on Friday 20^th July at 0930hrs, we should receive the UK June PSNB-Ex. Public finance numbers have been relatively weak over the previous few months, and we can expect a continuation of that trend in the June data. In the May data, receipts had remained relatively stagnant on the year, while expenditure was beginning to creep up, although some of the increase in expenditure in May could have been due to the change in bank holiday dates. Of course the public finance numbers, like much of the other UK data, will be affected by the extra bank holidays in June and the exact scale and direction of impact are not clear. For the record, at the same time last year the PSNB-ex was £13.1bn in deficit.

James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla

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The Local Authority Treasurers’ Investment Forum September 25th, 2012, London Stock Exchange
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