The Bank fails to hold back the good news on the economy

Retail sales figures for July show the strongest growth since January. There’s a surprise for the Bank of England, who had highlighted a major knock to  consumer confidence and was expecting consumer expenditure to nosedive. Instead July saw big increases in eating out, food and clothing sales. The weather helped , we are told, implying people carried on as normal regardless of the referendum result.

The Nationwide house price index rose 0.5% in July, the first full month post the vote. There’s another surprise for the Bank of England, who told us house prices were going to drop after an Out vote. Actual figures confirm the predictions I made here, that there will be no Brexit collapse and no Brexit inspired recession,  nor any  collapse in house prices after the vote.

The Bank should have waited a few days for these real  figures on what happened in the five weeks after the vote, instead of plunging in with its monetary package. There was no need to cut rates further or to buy up more government bonds. The UK government interest rate collapsed after the vote anyway, before the Bank announced its passion to buy up yet more   government bonds. The government had to pay 1.37% to borrow 10 year money on referendum day. That halved in the month following the vote. Yesterday it slumped further to just 0.6% with the Bank’s package adding to the bond  bubble pressures already in the system.

The Bank’s big shift from forecasting a recession (see their May statement and press comments) to forecasting a slowdown in growth for 2017 was picked up by some in the press and media. The Bank is now forecasting 2% growth this year and 0.8% next year. This 2017 forecast is far too low, and would have been even without the special stimulus now released into the system.

Now is an excellent time for people to shop and to buy British goods. Employment is high, real wages are growing, and the dearer imports will be cushioned for a bit by forward cover on currencies taken out by importers and retailers. Many retailers have been discounting and making special offers available for many months, from way before the referendum became an issue. The progressive power of the internet is helping control retail prices and offers competitive choices to shoppers. That is going to continue.

Doubtless retail sales and residential property transactions will fluctuate after the vote as they did before. The general pattern given the economic background remains positive for both. You would expect the usual seasonal lull in August, but should not expect a big fall in prices or output.

By johnredwood | Published: August 10, 2016