Overview of the week commencing 14 August
Graham Cross, CEO
This week we focus on UK trade and the US Treasury budget.
The Office for National Statistics (ONS) estimates that June brought about a trade deficit of £4.6 billion; £2.0 billion more than in May. Total exports amounted to £49.4 billion and total imports amounted to £53.9 billion. That compares with last month’s exports tally of £49.7 billion and imports bill of £52.2 billion.
That leaves the deficit at a whopping £8.9 billion for the second quarter of the year, up a little on the first quarter.
Actually, it is now a year since the majority of Brits voted to leave the EU. Back then the trade deficit was £9.5 billion. Still, with an 8.7 percent decline in the value of sterling, you’d expect the trade deficit to have narrowed much more substantially. After all, more expensive imports ought to temper demand and cheaper exports ought to find more willing customers abroad. And, while import prices have consequently risen – by an average of 7.8 percent – it is clear that export prices have risen too, to a point that offsets any advantage a lower exchange rate might confer. The ONS think that export prices have risen by close to 8.2 percent.
In the US, it is widely expected that the federal deficit, expressed as a percentage of gross domestic product, will move from 3.2 percent in 2016 toward 3.6 percent in 2017.
There is nothing in July’s monthly Treasury Statement to cast any doubt on that prognosis. But, according to Moody’s, the federal fiscal risks will come into ‘sharp focus’ quite soon. In September, in fact… ‘Congress must pass a fiscal 2018 spending bill or at least a continuing resolution by September 30 to avert a government shutdown’.
As if that wasn’t exciting enough… ‘Around the same time, unless lawmakers raise the debt ceiling … U.S. Treasury Secretary Steven Munchin … projects the Treasury will run out of cash [on] September 29. That would leave Congress with less than a month to address the debt limit after its summer recess’.
Our guess is that we won’t see the same sort of brinkmanship that we saw during the Obama administration, but you really can’t rule anything out, these days.