No Change Policy
10 / Aug / 2008
Manufacturing output fell for the 4th month in a row according to The Office for National Statistics. Output fell 0.5% in June and at the sharpest annual rate seen for 2 1/2 years giving further evidence the economy is slowing quicker than maybe anticipated. On the year manufacturing output fell 1.3%, the biggest fall since December 2005. This figure was followed by an also depressing Construction Orders figure. New Orders in the Construction sector fell 21% annually as the property market downturn gathers pace. New Orders were down 8% compared to the first quarter with decreases in all sectors except the public sector. Private Housing was the biggest faller with orders dropping by 10% on the quarter and by a massive 35% in the year. Public Housing and Housing Association orders actually rose 24% on the quarter but were still 11% down compared to a year ago.
The Halifax released their house price index last week and it seemed to fall in line with the Nationwide’s. They reported house prices falling 1.7% on the month, slightly worse than the prediction of a 1.5% drop. According to the Halifax the average price of a house is now £177,351 compared to the peak of £199,600 in August 07, down 11%. Finally The Bank of England gave us no surprises last Thursday as they announced base rate would be held at 5%. The MPC could not ignore that the threat of a recession is looming and clearly, mainly due to fuel costs, a rise in inflation is unavoidable. However, as we see weaker growth, inflation should start to fall sharply next year therefore a no change policy is probably the best.
The beginning of this week will no doubt cause more concerns about the way forward for the Economy. Today we have the Producer Price Index for output and input costs and the UK Trade figures. On Tuesday it’s the Consumer Price Index, which will certainly show inflation well above the Government target, and on Wednesday it’s the turn of the ILO Unemployment Data and average earnings, in other words, another week of discontent!