Chicken and Chips ...

No Chicken in Nando's, No Chips at Nissan, No shakes at MacDonald's. Empty shelves are increasing. The head of the Co-Op said food shortages were the worst he has ever known. Evidently not a war baby, CEO Steve Murrells announced the group was reducing some ranges. The ability to get food into stores was hit by post Brexit migration rules and Covid challenges.

This week, once again, the car industry reported production difficulties. Output fell by 37% last month. It was the worst July performance since 1956. Manufactures "grappled" with the global shortage of semi conductors.

Taper Tantrum

Markets awaited with interest the update from Fed Chair Jerome Powell this week, at the Jackson Hole virtual symposium. The central banker hinted the Fed could start scaling back stimulus this year. The inflation surge is expected to be temporary. There was no prospect of a rate rise anytime soon but some tapering of asset purchases could begin before the end of the year.

From hospitality to healthcare, companies are complaining they can't get staff. Recruitment difficulties are increasing, pay rates are rising. More perks and promises are on offer to secure sign ups. The pingdemic isn't helping.

This week, the SMMT reported production shortfalls as a result of the global chip shortage, caused by the pandemic and staff shortages caused by the pingdemic.

By the end of July, almost 700,000 workers had received isolation alerts from the NHS "Stay at Home" App. The motor trade is just one of many, hit by the pings. The list of "reserved" occupations is expected to rise. Isolation conditions will ease, for all in August.

JKA

Central Bankers came under increased pressure this week as inflation levels continue to rise. Jerome Powell, Chair of the Federal Reserve admits to being "uncomfortable" about the level of price increases.

“This is a shock going through the system associated with reopening of the economy, and it has driven inflation well above 2%. We’re not comfortable with that,” Mr. Powell told the Senate Banking Committee on Thursday. CPI Inflation hit 5.4% in June.

In the U.K. inflation CPI basis increased to 2.5% in June, the Bank expects levels to rise to 3% before returning towards the 2% target later this year. Not all members of the MPC are in agreement.

Dave Ramsden thinks inflation could hit 4% before falling back to target. He thinks conditions are such, a tightening in policy may be required somewhat sooner than he had previously expected.

Michael Saunders, in his "Inflation Outlook Speech" this week, explained, "In my view, if inflation indicators remain in line with recent trends, it may become appropriate fairly soon, to withdraw some of the current monetary stimulus.

Recovery on Track Despite Market Wobbles ...

Finals weekend at Wimbledon and Wembley, a great couple of sporting days ahead. Is it really coming home on Sunday! Let's hope so. We wish the England team well, as they put an end to all those years of hurt!

Markets wobbled mid week. The ebb and flow of fortune on court, always evident in the markets. The Dow closed down below 34,200 on Thursday, before closing at a new record high at almost 35,000 by the end of the week.

Don't Worry About Rising Debt ...

Phil Aldrick reports of a mugging in Downing Street this week. The Chancellor received help from Treasury and the OBR to convince the Prime Minister it was time to dig up the magic money tree in the rose garden.

Within days, Sunak was warning of a possible end to the triple lock, an end to furlough scheme and an end to the universal credit coupon. No money for the Biden's Global Belt and Braces initiative, money had to be found for building batteries in the UK. JKA

Inflation Alarmism Could Kill Off Recovery

The Governor of the Bank of England Andrew Bailey warned this week of "Inflation Alarmism". Prices are on the rise. House prices increased by over 11%. Haribo deliveries are failing, for a lack of lorry drivers. Construction costs are rising at the "drop of a hat". Quoted prices are good for just 24 hours. A shortage of materials is compounding pricing dilemmas in the building industry.

Rising Oil Prices Could Kill Off Recovery

In our "What next for oil prices", published in May we expected oil prices Bent Crude basis to average $66 dollars in the third quarter of the year. Prices closed last week at $76 dollars. The OPEC delay to any decision on output increases didn't help. The US administration is voicing concerns as the market tests the $75 dollar level. OPEC concerns rise as fears of "Demand Destruction" loom as prices rise.

Borrowing Falls ...
Latest figures confirm borrowing will be much lower than expected at the start of the year. In March, the OBR were forecasting borrowing of £234 billion in the current financial year. The strong bounce back in the economy suggests public finances are in much better state than expected.

Bank Holds Rates ...
The Bank of England Monetary Policy Committee voted this week to keep rates on hold and to maintain the existing target of UK government bond purchases at £875 billion. The bank continues to hang on to the £20 billion of corporate bonds picked up in the Brexit drama five years ago. The logic of the bond acquisition elusive, the language of the government bond purchases now excludes "QE". JKA

The Dow closed down, the dollar moved up. Ten year bond yields moved higher by just three basis points. Not much of a taper tantrum, more of a milk shake than an earthquake. The Fed announced the policy decision mid week, effectively to do nothing.

It wasn't really making any changes. There would be no increase in base rates. The asset purchase program would continue at an eye watering $120 billion dollars per month. No real concerns about inflation. It remains always and everywhere a transitory phenomenon.

JKA

Official data from the ONS this week revealed "the economy is hotting up". UK GDP is estimated to have grown by 2.3% in April, as government restrictions continued to ease. Compared to prior year, the economy grew by 28%. Construction activity was up by 80%. Manufacturing output increased by 40%. Service sector activity increased by 30%. The increase in the service sector was driven by a surge in retail expansion with strong growth in education, accommodation and food. Construction activity slowed slightly in the month. Developments in the service sector were faster than expected. The service sector expanded by 3.4%