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NEWS | 2012 | Economic outlook by Ben Wattam, Investment Manager

28 Mar 2012

Economic outlook by Ben Wattam, Investment Manager

UK
The UK real weekly average wages trend continues to be downwards, with the gap between public and private sector pay showing no sign of closing. Weekly wages for both the public and private sectors rose steadily between 2000 and 2008, leaving the ‘average’ worker a significant £80 per week better off. However, since then real wages have declined, with wages in the private sector falling faster than in the public sector. The average wage for the private sector today is the same as it was in the summer of 2004 (or 2005 for the public sector).

UK Weekly Average Wage

It will be welcome news then to learn that inflation fell to its lowest level in a year to 3.4% (Jan: 3.6%). If this trend continues, it will aid consumer spending by reducing the squeeze on incomes and hopefully aid the overall economy. The current reduction in inflation can be attributed to falling retail sales, forcing companies to reduce prices. The ONS has stated this week that UK retail sales fell by 0.8% in February alone. One victim in particular has now called in the administrators, with Game Group declaring their shares worthless.

Asia

The Reserve Bank of India’s scope for a series of interest rate cuts to bolster a slowing economy may be hampered by inflation risks from a budget deficit projected to exceed 5% for a second year. The Reserve Bank of India left interest rates unchanged at 8.5% for a third meeting on 15 March, joining Asian nations from Indonesia to South Korea in holding borrowing costs.

Europe

Greece had its first bond auction this week following the largest ever sovereign debt restructure. The Public Debt Management Agency sold €1.3 billion of 3-month bills at an improved yield of 4.25%, down from 4.61% at the last auction in February. Spain also achieved a lower yield in its latest auctions of 12 month and 18-month bills, achieving rates of 1.4% and 1.7% respectively.

US

US existing home sales dipped slightly last month but still recorded the strongest February in five years as the US housing market showed further signs of recovery. According to the National Association of Realtors, the seasonally adjusted annual rate of sales came in at 4.59 million. Consumer prices rose the most in ten months in February as the cost of fuel spiked. Consumer prices rose 2.9% last month from a year ago, unchanged from January but down from a peak of 3.9% in September. The Federal Reserve said on Tuesday the recent spike in energy costs would likely lift inflation only temporarily.

Economic data tables


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