16 Jan 2019

Brexit meaningful vote

Last night the UK government suffered a thumping defeat in the ‘meaningful vote’ on its Brexit deal following five heated days of debate. Just 202 MPs backed the government’s deal, with 432 voting against it (a majority of 230 against).

Following the defeat, Prime Minister Theresa May pledged a statement about how she intends to proceed by Monday (21 January) after having “put forward realistic ideas to the EU”. Ahead of the vote, European Commission President Jean-Claude Juncker pulled out of a scheduled debate in Strasbourg on Wednesday in order to remain in Brussels to deal with “this specific emergency”. Additionally, German Foreign Minister Heiko Maas indicated earlier in the day that the EU was prepared to offer further assurances on the contentious ‘backstop’ in the event that the government was defeated. Furthermore, the Prime Minister has also promised to begin cross-party talks aimed at forming a parliamentary consensus on Brexit from Thursday. We can therefore expect other forces in Parliament to seek to shift the government’s course whilst there will no doubt be calls for Parliamentary votes on the next steps, though PM May has indicated she would resist this.


Before the Prime Minister begins talks with EU leaders and opposition parties, she will first face a motion of “no-confidence” in the government which has been tabled by Labour leader Jeremy Corbyn. This is set to take place today following six hours of debate beginning at 1:00pm, with the result of the motion expected around 7:20pm. It is widely expected that Mrs May will win the confidence vote with the government’s confidence and supply partner the DUP having pledged its support in such a challenge, despite having voted against the Prime Minister’s deal in last night’s 'meaningful vote'. Even so Labour has indicated that it is willing to table multiple motions of no confidence in its aim to bring about a General Election. Looking ahead, the timetable leading up to the UK’s planned departure from the EU on 29 March now looks to be very tight, leading us to judge that the likelihood of an extension to Article 50 has increased.


UK CPI figures due


The UK annual rate of CPI inflation fell from 2.4% to 2.3% in November, its lowest outturn since March 2017. Additionally the ‘core’ measure of CPI (excludes food, energy, alcohol and tobacco) also softened from 1.9% to 1.8%. Weighing heaviest on the targeted rate was the recreation and culture category, itself largely due to volatile video games prices as well as concert tickets. By contrast, the greatest source of upward pressure was the alcohol and tobacco category as the timing of the 2018 Budget meant that the tobacco duty “escalator” was applied a month earlier than it was in 2017. Consequently the effect of the escalator will flip in the opposite direction in December (i.e. a downward contributor to the 12-month inflation rate). Even so, it is likely to pale in comparison to the impact of the 4.4% slide in fuel prices across the month, which we estimate will knock as much as 0.16pp off the headline rate of inflation. Identifiable upward influences, by comparison, are relatively sparse and immaterial for the month.


Our expectation is that the targeted CPI rate will ease to a near two-year low of 2.1% in December. With the deceleration almost entirely driven by the movements in fuel and tobacco prices outlined above, we look for the ‘core’ rate to hold steady at 1.8%.


Irish Economy: Trade surplus jumps in November


Goods Exports and Imports data published by the CSO show that the seasonally adjusted
trade surplus widened to €4.6bn (a six month high) in November from the previous month’s €4.1bn outturn.


This outturn was produced by a 9% m/m decline in seasonally adjusted imports (to €7.3bn), with Exports slipping 2% in the month to €11.9bn. As the data can be lumpy on a monthly basis, it is perhaps more instructive here to examine the (unadjusted) year to date performance, which reveals annual growth of 14% in exports (to €128.5bn), a 12% y/y rise in imports (to €81.2bn) and a 17.1% y/y widening in the trade surplus (to €47.3bn).


The buoyant export performance in 2018 is very creditable given the more uncertain external backdrop, although it should be noted that these data can be skewed by the multinational sector. As an aside, we note that (unadjusted) exports of Chemicals and Related Products to the UK were about a tenth above year-earlier levels in November, which may be influenced by Brexit-related inventory build by the NHS.


Irish Economy: CPI +0.5% in 2018


The CSO released final CPI data for 2018 yesterday. These show that prices were, on average, +0.7% y/y in December, bringing the full-year 2018 inflation rate to 0.5%.


Prices slipped 0.6% in the month, led by declines in the Clothing & Footwear (-1.1% due to sales) and Alcoholic Beverages & Tobacco (-1.0% m/m, chiefly due to discounting of spirits by supermarkets) indices. As mentioned, prices were +0.7% y/y in December, with this annual increase driven in the main by Housing related items (+4.6% y/y, led by higher utility prices, rents and RMI costs) and Restaurants & Hotels (+2.1% y/y, within that we note that average Restaurant prices were +3.1% y/y in December – this pre-dates the VAT increase which took effect from 1 January and makes a mockery of claims that higher prices would kill the sector).


Three sub-indices that we closely track are Private Rents (+0.2% m/m and +6.4% y/y), where the ongoing mismatch between supply and demand continues to put upward pressure on prices; Insurance (flat in the month and -4.3% y/y), where favourable developments in the claims environment, notably motor, is benefiting consumers; and Accommodation Services (-1.9% m/m and -1.5% y/y, which may be driven by mix effects given other strong hotel sector data).


The headline annual rate of inflation has now been sub-1% for 70 successive months, underpinning a meaningful advance in household real incomes (average gross weekly earnings were +3.2% y/y in Q318, while pay packets have been further boosted by income tax cuts). This, in turn, has supported solid growth in consumer spending (retail sales were +2.7% y/y in cash terms in November).


Economic Releases


09.15 UK BoE Gov Carney speaks

09.30 UK PPI

09.30 UK CPI

13.30 US Retail Sales

19.20 UK Vote of Confidence result