The recovery in the UK has faded, with manufacturing, housing, and services all weakening in August. In response the BOE Mulls ‘Second Wave’ of Stimulus

Bank of England Governor Mervyn King may have to embark on a new round of bond purchases as Britain’s rebound from the worst recession since World War II fades.

Manufacturing, services and construction all faltered in August and the housing market weakened, surveys showed last week. That suggests 200 billion pounds ($309 billion) in bond purchases by the central bank since March 2009 and record-low interest rates may not be enough to keep up the economy’s momentum in the deepest budget squeeze in more than six decades.

“They are more likely to loosen policy further before they tighten it,” Alan Clarke, an economist at BNP Paribas in London, said in a telephone interview. “The danger is acting too late and not soon enough.”

BNP economist Clarke says Bank of England officials could probably justify further bond purchases using their new forecasts, though the current strength of price pressures makes it less palatable for them as they seek to preserve their inflation-fighting credentials.

“Clearly they are concerned that loosening in an environment where the latest GDP figure is 1.2 percent and the latest inflation figure is above 3 percent would undermine their credibility,” he said. “That’s the trap they’re in.”

Quantitative easing did nothing for the US, nothing for Japan, and nothing for the UK (at least for the real economy). Yet central bankers seem committed to the strategy.

UK Trade Deficit Hits Record

Economists in the UK were disappointed to see U.K. Trade Deficit Widens to Record

The U.K.’s trade deficit widened to a record in July as purchases of chemicals and oil drove imports to the highest level in two years.

The goods-trade gap widened to 8.7 billion pounds ($13.4 billion) from 7.5 billion pounds and June, the Office for National Statistics said today in London. The median of 13 forecasts in a Bloomberg News survey was for a 7.5 billion-pound deficit. Exports fell 0.9 percent and imports rose 3.1 percent.

While the jump in imports may signal strength in domestic demand, weakening exports suggest the economy is failing to benefit from the weakness of the pound, which has fallen by a about a fifth on a trade-weighted basis since the start of 2007.

US Trade Deficit Narrows

Economists in the US were surprised to find US Trade Deficit Narrows, Unemployment Claims Drop

The trade gap shrank 14 percent, the most since February 2009, to $42.8 billion, the Commerce Department said today in Washington. The deficit was less than the lowest forecast in a Bloomberg News survey of economists.

Overseas shipments increased 1.8 percent to $153.3 billion, the highest since August 2008, while purchases from abroad declined 2.1 percent. Economists projected a deficit of $47 billion, according to the median of 73 estimates in the Bloomberg survey. Forecasts ranged from $43 billion to $52 billion.

Trade subtracted 3.37 percentage points from growth in April through June, the most since record-keeping began in 1947. The Commerce Department on Aug. 27 lowered its estimate for second-quarter growth to a 1.6 percent annual rate from the previously projected 2.4 percent. A final estimate for the quarter will be released Sept. 30.

Increased exports vs. imports will be a positive factor in GDP, so perhaps we will not see a negative 3rd quarter GDP. Nonetheless I expect surprises to be to the downside.

Jobless Claims Drop or Not?

Weekly unemployment claims fell this week as did the 4-week moving average as noted in Weekly Claims Drop to 451,000, 4-Week Moving Average at 478,000; Where to From Here?

One thing I missed was 9 states including California did not track claims because of Labor Day. From the preceding Bloomberg article…

Nine states didn’t file claims data with the Labor Department in Washington because of the Labor Day holiday, a department official told reporters as the figures were released. California and Virginia estimated their claims, and the U.S. government estimated the other seven.

Because of the holiday and more importantly because nine states made estimates, I do not think anyone can trust this drop in claims at all. Look for big revisions next week.

Mike “Mish” Shedlock
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