Economy in Brief: 2022

U.K. inflation rose by 0.5% in May after rising by 1.9% in April and 1.0% in March. Inflation acceleration was far less common in May with inflation accelerating in only 18% of the categories. In April inflation had accelerated in only 36% of the categories. That compares to March when inflation had accelerated in over half the categories with the diffusion value 54.5%. Despite seemingly tamer performance of inflation, inflation continues to rise and to accelerate from 12-months to six-months to three-months. Core inflation also broke lower in May at 0.3%; in April it was up by 0.5% but in March it had risen by 0.8%.

If we look at sequential trends, the U.K. headline CPIH rose 7.9% over 12 months, and at a 10.2% pace over six months, and logged a 14.4% pace over three months. The CPIH, excluding energy, food, alcoholic beverages & tobacco - the core measure, rose 5.2% over 12 months, at a 5.9% annual rate over six months, and at a 6.4% annual rate over three months. Inflation in the U.K. is accelerating over these sequential periods.

U.K. inflation is clearly excessive, but the Bank of England has prevaricated in taking firmer steps perhaps partly because of this less broad inflation in April and on the lower gain for inflation in May. But the Bank of England is still well behind the inflation curve, like the U.S. Federal Reserve and like the European Central Bank. Central banks need to get out ahead of the inflation problem and not chase it from behind, and become complacent when there's some sign that inflation might be slowing ‘organically.’ Central banks have come to dwell on the idea that they don't want to create a recession and that possibly they can create a soft landing. However, they are all so far behind the curve in terms of inflation fighting; it's hard to see how they can run hard enough to catch up without doing damage to the economic landscape.

U.K. orders moved lower in June, falling back to 18 from the previous value of 26 in May. The reading for total orders is still up strongly from its 14 value in April. Export orders slowed relatively sharply in June to a ‘plus one’ reading from 19 in May; they registered a -9 reading in April.

However, total orders remain close to their 12-month average. The current value of 18 compares to a 12-month average of 20. Export orders also are close to their 12-month average which is minus-two versus the June value of plus-one. The queue standings of orders in the U.K. ranks strongly among data from 1991 as the current reading of 18 has a 97.6 percentile standing while orders are up for exports whose plus one reading has 87.5 percentile standing. Both orders series are quite strong on this historic timeline.

Data for inventories (stocks) show that stocks are at a +2 diffusion reading up from -15 in May as the appetite for inventories has improved. That is a bit stronger than the -3 reading for June. Stocks, however, are at a very low historic reading; the queue standing for the plus-two reading in June is at its lower 7.7 percentile standing.

The CBI also gives look-ahead data for the next three months. Total output is expected to be solid at 20 for June, slightly down from the 23 reading in May but stronger than the 17 reading in April. The 20 reading for June is also below the 12-month average which is at 27. The ranking for the June outlook figure is still relatively firm at 79.3% standing. That means the reading for output is higher only about 21% of the time.

The outlook for average prices fell relatively sharply in June to 58 from a 75 previous reading that had been at 71 in April. There is some tailing in the outlook for prices; the average for prices over last 12-months the reading of 62 putting the June 58 reading below the average. Although the 58 reading has fallen sharply over the past couple of months and is below its 12-month average, it still has a 97.6 percentile standing on data since 1991. The outlook for prices signals strength.

Note the right-scale left-scale chart and the tendency for overall orders and export orders to have to tracked one another fairly closely on these two preset scales. It shows that historically there were broad, common, and consistent movements on the two series. However, in this recent recovery from Covid, we see that the domestic orders series has recovered a lot faster than the export order series. That suggests the international economy is not contributing the same kind of jolt to the domestic economy as it did in the past.