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%