In January, both housing starts and permits dropped to a new record low. Housing starts plunged by 16.8% M/M, from an upwardly revised 560 000 to 466 000, while the consensus was looking for a figure of 529 000. Building permits, on the contrary, came out in line with expectations falling by 4.8% M/M from a downwardly revised 547 000 to 521 000. Also housing completed (-24.2% M/M) declined sharply in January, while housing under construction dropped by a more moderate 2.8% M/M. Both housing starts and permits are expected to remain week in the coming months as the large inventories of unsold homes need to be worked off before we expect to see a significant improvement in housing starts and permits.
Industrial production showed a steeper than expected drop in January. On a monthly basis, industrial production fell by 1.8% M/M, while a decline of 1.5% M/M was expected. The previous figure was downwardly revised from -2.0% M/M to - 2.4% M/M. The decline was led by a 2.5% M/M drop manufacturing, due to a plunge in production of motor vehicles and parts (-23.4% M/M). Utilities rose by 2.7% M/M, while mining fell by 1.3% M/M. In the coming months, industrial production is expected to remain sluggish due to weak activity in automotive sector.
Other: BoE unanimoulsy agreed to seek permission for quantitative easing
On the 5th of February, the Bank of England decided to cut rates by 50 basis points to 1.00%. The Minutes revealed a two-way split with eight members voting for a reduction by 50 basis points, while Blanchflower voted against, preferring a reduction by 100 basis points. Nevertheless, the Monetary Policy Committee decided that further cuts in the Bank Rate could not inject sufficient stimulus and would need to use alternative policy instruments. The Minutes said:’ The Committee unanimously agreed that the Governor should write on its behalf to the Chancellor to seek authority to conduct the purchases of government and other securities, financed by the creation of central bank money using the APF. Governor King hinted last week that the MPC may start such policy as early as next month.
In the UK, the CBI industrial trends survey showed another worsening in total orders (-56 from -48) in February. Also total export orders declined further (-49 from -39) which indicates that the weakening pound was unable to outweigh the effect of falling global demand. The expectations for volume of output fell marginally (-44 from -43), while finished stocks stayed unchanged at 27. Average prices expectations dropped further from -12 to -13. Demand for UK manufactured goods is now at its lowest level in 17 years, which indicates that UK producers are become ever more pessimistic.
