Overview of the week commencing 16 January
Graham Cross, CEO
Last week brought news of a wider British trade deficit and a marginal decrease in the University of Michigan index of consumer sentiment.
In the five full months since the referendum sent the pound tumbling, the monthly trade deficit has averaged close to £3.6billion. The November figures come in at £4.2billion. A steady £8.0 billion surplus in services is accompanied by a deficit of £12.2 billion in goods. Rather than take advantage of a weak pound and compete for market share, it seems that British exporters have taken the opportunity to increase their margins by hiking prices.
That is one of the reasons we remain sceptical that the fall in the pound – thus far by around 16 percent against the dollar and the euro – is going to materially effect the balance of foreign trade any time soon. The other reason is that there simply aren’t many British manufactured products on sale that compete with those goods we import, meaning that consumers don’t yet have the option of switching – as the value of the pound declines – from more expensive foreign products to cheaper native alternatives.
The preliminary figures for the University of Michigan ‘Surveys of Consumers’ show some minor level of deterioration from what was, in December, a post-election spike. Actually, what is interesting is the impact that politics Is having on consumer sentiment at present.
The surveys’ chief economist, Richard Curtin, notes that from ‘1960 to 2000, the combined average of positive and negative references to government policies was just 6%; during the past six years, this proportion averaged 20%, and rose to new peaks in early January, with positive and negative references totalling 44%’.
So, we can infer that the difference in sentiment between Trump’s supporters and detractors is much wider than is usual, but that politics was becoming increasingly polarised from the middle of Obama’s first term in office.
All things considered, that makes good sense. But we also think that it’s a trend which undermines any informational content we might draw from consumer sentiment surveys!
The week ahead provides us with an opportunity to catch up with UK inflation and Chinese GDP. We’ll report on those next week.