Brexit woes were mixed with largely welcomed UK economic news this week. Wages were reported as rising at their fastest pace in nearly 10 years – a welcome boost for household finances. The Office for National Statistics (ONS) said that earnings excluding bonuses rose by 3.1% in the three months to August compared to 12 months earlier, beating expectations and outstripping the 2.9% rise in the three months to July. Economists said that low unemployment was at last pushing up wages, as has historically been the case.
The data came alongside figures showing that unemployment held steady at 4 per cent, although the number of people in work dropped by 5,000, against expectations of a rise. The following day the ONS reported inflation falling sharply in September, from 2.7% in August to 2.4% in September. The news means that, on average, UK earnings are at last outstripping inflation.
The drop in inflation was due to falls in the prices of video games, package holidays, clothing and transport, and will take pressure off the Bank of England to raise interest rates in the near future. Ideally, any decision would wait until uncertainty around Brexit is resolved, but that appears to be some time away; a Brexit summit scheduled for next month was cancelled on Wednesday evening, with both sides saying they had reached a deadlock over the Irish border issue and there was little point in more talks at this time. Theresa May has indicated that she is prepared to extend the transition period to give enough time to solve the problem. That means that Britain could be tied to the EU beyond the scheduled transition period end date of December 2020. This news angered MPs from all camps and rumours of a leadership bid have intensified. Meanwhile, European countries such as France and Germany were said to be stepping up preparations for a disorderly Brexit.
UK retail sales dropped in September after a strong summer, with food sales recording their biggest month-on-month drop in three years. Volume of overall retail sales dropped by 0.8% but food sales were down by 1.5% in the month. The data, from the ONS, suggested that overall sales still grew in the quarter thanks to strong sales in July and August. Somewhat ironically, the figures came just a day after the ONS reported that falling food prices had helped cut inflation in September.
China reported its worst quarterly economic growth figures since the depth of the financial crisis on Friday. Year-on-year growth came in at 6.5%, down from an annualised 6.7% the previous quarter, prompting Vice Premier Liu He to defend the country’s outlook, dismissing impacts of the trade war as largely “psychological.” Meanwhile in the US, consumer spending slowed sharply in September. Total retail sales grew by just 0.1% in the month, far short of forecasts for 0.7% growth. Sales of home appliances and electronics were the biggest gainers, although economists expect sales growth to slow further in the fourth quarter as the boost from Trump’s tax package fades. In Europe, the EU rejected Italy’s budget proposals and its bond yields spiked higher as a result, reflecting a perception of increased risk.
Main source of information: Company Report and Accounts, Bloomberg
The value of investments and any income from them can fall and you may get back less than you invested. Past performance is not a guide to future performance and performance is shown before charges, which would reduce the illustrated performance. No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition we reserve the right to act as principal or agent with regard to the sale or purchase of any security mentioned in this document. For further information, please refer to our . If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset. Any tax advantages or allowances mentioned are based on personal circumstances and current legislation which are subject to change. The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd. The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Brewin Dolphin Ltd, a member of the London Stock Exchange, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Smithfield Street London EC1A 9BD. Registered in England and Wales no 215876.