The ECB announced a program of unlimited short-term government bond purchases to reduce borrowing costs for Italy and Spain in an effort to alleviate the Eurozone crisis. While this eases short-term pressures, it does not address the fundamental issues within the Euro system. Germany remains opposed to the plan due to fears of hyperinflation. The bond purchases have pushed the resolution of the Eurozone's long-term issues further into the future.

1. The Saturday Economist johnashcroft.co.uk
Draghi saves the euro and the world Saturday, 8 September 2012
Economic news this week, OTHER NEWS
Excitement in Europe as Manufacturing
Draghi fulfills his promise to July output bounces back in the
do whatever it takes to save the month but 0.5% down in 2011.
Euro (and the world). --------------------------------
Producer Prices
The ECB announced a Output prices rise by 2.2% as
programme of unlimited short input costs increase 1.4%.
dated government bond buying ------------------------------
to reduce borrowing costs for Money Supply
the troubled economies of Italy Narrow money, notes and coins
and Spain. increase by 5.1% August
---------------------------------
Alleviating the crisis will Base Rates
not do much to attack the For those who consider the single currency is unsustainable MPC votes to keep base rates
fundamental problems within in its present form, the endgame has been pushed much on hold, no more QE for now.
the Euro system but the can further into the future. -----------------------------
has been given a hefty kick Jens Weidmann president of the Bundesbank appears to be Base Rates
down the long long road for the sole opponent of the plan. Fears of Weimar Republic Why the next move will be up
some time to come. hyperinflation remain ever present. and much sooner than expected
Closing : FTSE : 5,794; 10 Year Gilts 1.71%, Oil Brent Crude $114.25; Gold $1,737; $ 1.601; € 1.249

2. The Saturday Economist johnashcroft.co.uk
ECB moves to mop up Euro bonds Saturday, 8 September 2012
The ECB made the critical problems within the
move to save the Euro and Euro system but the
mop up the bonds on the can has been given
olive branch of the Southern a hefty kick down
states. the long long road.
Draghi fulfilled his promise For those who
to do whatever it takes consider the
to save the Euro (and the single currency is
world). The ECB announced unsustainable in its
a programme of unlimited present form, the
short dated government bond endgame has been
buying to reduce borrowing pushed much further
costs for the troubled into the future.
economies of Italy, Spain and Fears of Weimar Republic hyperinflation remain ever
Greece. Jens Weidmann present. The Germans begin large scale production of the
president of the wheelbarrow industry. Perhaps this accounts for the 1.3%
Alleviating the short term Bundesbank appears increase in German manufacturing output in July!
crisis will not do much to be the sole critic of
to attack the fundamental the plan.

3. The Saturday Economist johnashcroft.co.uk
Manufacturing output up in July... Saturday, 8 September 2012
In the UK, manufacturing According to the influential
output increased by over Marki/CIPS survey,
3% compared to prior the downturn in UK
month. manufacturing showed
signs of easing during
Compared to July last year, August.
output remains down by
-0.5%. The seasonally adjusted
Markit/CIPS Purchasing
Over the first seven months Manager’s Index® (PMI®)
of the year, output is down rose to 49.5, from 45.2
by around 1.5%. in July, a four-month
high and only slightly
In the third quarter, we below the 50.0 mark that A further recovery could begin in the final quarter of the
expect output to remain separates expansion from year. We expect growth of 1.5% sustained into 2013.
flat, but the trends suggests contraction.
growth of around 1.5% Investment in capital goods, largely for the emerging
could materialise in the final Output still remains almost economies, will lead the recovery as European demand
quarter of the year. 10% down on the peak responce to the Draghi drug fix helps.
levels in 2008.

4. The Saturday Economist johnashcroft.co.uk
Inflation - producer prices tick up... Saturday, 8 September 2012
Producer prices increased Oil prices Brent Crude basis
by 2.2% in August closed at $114.25 at the end
compared to 1.8% in July. of last week. The average
price was almost 2.5%
This increase in the annual higher in August compared
rate is the first significant to August prior year.
rise following a period
of slowing inflation from In the final quarter of the
September 2011 according year we think prices could
to the ONS. average $118, 7% higher
than the end of 2011. That
Input prices also increased would push producer input
by 1.4% compared to a fall prices to 3% and output
of -2.4% in July. Energy and prices to around 2.5%.
food prices generated the
rise with fuel cost increases The implications for retail
up by 5% and imported food price inflation such that
costs up by 4.5%. Domestic inflation CPI basis would
food prices increased by average 2.8% in the final
almost 14%. quarter of the year.

5. The Saturday Economist johnashcroft.co.uk
Interest rates kept on hold at 0.5% Saturday, 8 September 2012
Thursday the Bank of Money supply,
England MPC voted to Money supply notes and
keep rates on hold and to coins increased by 5.1%
contain the level of Asset in August compared to
Purchases at £375 billion.
5% in July, in line with
the long run average.
No real surprise despite
some calls for a cut in base
Average
rates of a further 25 basis amounts
points. outstanding were £63.4
billion representing a
Ten year gilt yields velocity of circulation of
languish at 1.7%, the buy around 22.8.
order for APF is still not
Where next for rates?
complete, the option for a Speculation continues
cut in rates and further gilt
We think inflation CPI Draghi’s drug may
about the contribution of basis is likely to be provide the fix Euroland
purchases is limited.
QE to the economy and around 2.8% in the final needs. The UK economy
economic growth. No quarter of the year, as oil could look a lot better by
The next rate move will be
up and much sooner than is evidence of impact on prices and food inflation the end of year. The next
expected. broad or narrow money. head higher. move is up!
Page 5

6. The Saturday Economist johnashcroft.co.uk
What happened in the world this week Saturday, 8 September 2012
German output rallies Spanish boos
German manufacturing The Chancellor was booed
output rallied in July as when presenting medals at
output leapt by 1.3%. the paralympics this week.
There has been endless
The ECB move is speculation as to why
significant in calling an end 80,000 booed.
to the calls for the end of
Draghi’s drug China - manufacturing
the Euro. That was the capacity of the
Bond yields rallied as the In August, China’s
stadium, the explanation.
ECB announced the bond manufacturing purchasing
Confidence and growth
purchase plan for Spain and managers index (PMI) was
should follow ECB move. Yeah that and economic
Italian debt. 49.2 percent, down by 0.9
policy perhaps.
percentage points month-
Outright monetary on-month.
transactions could be “on
my tab” the fear of Jens In the first quarter of the
Weidmann, the president year, the index averaged
of the Bundesbank. The 51.5 - manufacturing output
plan will be implemented is contracting slightly.
despite German fears.
Page 6

7. The Saturday Economist johnashcroft.co.uk
Professor Milton Keynes column Saturday, 8 September 2012
GDP and Claimant Count Comparisons
I am still puzzled by the In this chart the blue line GDP ONS PMK
strength of the employment represents the change in Q4 0.6 0.6
data and the apparent GDP year on year and the Q1 -0.2 1.2
weakness of the GDP red chart represents the Q2 -0.5 1.7
figures as published by quarter on quarter change Q3 na 1.8
the Office for National in the claimant count.
Statistics writes our resident
head of research Professor It is inverted so that as the
Milton Keynes this week. claimaint count increases,
the inverted chart falls in
Most people still think of line with the GDP change.
employment as a lagging
indicator of economic The most recent two
growth but as my chart quarters suggest the
explains, the claimaint estimates for GDP decline
count provides an extremely are at odds with the
reliable coincident indicator employment data. Far from
of trends in the economy. falling, the economy may
well be growing.
Page 7

8. The Saturday Economist johnashcroft.co.uk
Markets : FTSE 5,794 : DOW 13,306 : Nasdaq 3,136 : DAX 7,214 Saturday, 8 September 2012
FTSE 5,794 + 65 £:$ 1.600 + .013
DJIA 13,306 + 215 £:€ 1.249 - .012
NASDAQ 3,136 + 87 $:€ 1.278 + .020
DAX 7,214 + 243
$:¥ 78.02 + 6 bp
CAC 3,519 + 106
Base Rate 0.50%
Nikkei 8871 + 31
10 yr UK 1.71% + 05bp
Hang Seng 19,802 + 397
10 yr US 1.67% + 12bp
10 yr Euro 1.52% + 18bp
Brent Crude $ 114.25 - 0.24
Copper 365.25 +19.45
WTI Crude $ 96.29 -0.27
Corn 793 - 99.0
Gold $ 1,737 + 61
Wheat 887.00 +16.0
Silver 5000 $ 3,361 + 60
Cotton 75.75 - 65
Platinum $ 647.0 + 10
Page 8

9. The Saturday Economist johnashcroft.co.uk
Growth Inflation Unemployment Government Borrowing
GDP in the second quarter Inflation CPI basis was 2.6% Claimant count in July fell In the first three months to
fell by 0.5% year on year as in July. Inflation RPI and by 5,900 to a level of just June, Government was up
the recovery of 2010 petered RPIX increased to 3..2% from under 1.6 million and a rate by £4.5 billion. Borrowing
out in 2011. 2.8%. of 4.9%. is likely to exceed the levels
achieved in 2011/12.
Growth in Q1 fell by 02%. In Manufacturing price inflation The LFS count fell slightly
2011 UK growth was up by fell to 1.7% in July, latest (three months to June) to a
0.8% and 1.8% in 2010 . earnings up by 1.8% in May. level of 2.56 million. 8.0%

10. The Saturday Economist johnashcroft.co.uk
Latest Economic Indicators Saturday, 8 September 2012
Indicator Period Latest Source Notes
Inflation CPI July 2.6% ONS
Inflation RPI July 3.2% ONS
Inflation RPIX July 3.2% ONS
Earnings June 1.6% ONS Whole economy
Retail Sales Volume July 2.8% ONS year on year comparison
Retail Sales Value July 3.1% ONS year on year comparison
Unemployment m June 2.56m ONS LFS millions trailing three months
Unemployment % June 8.0% ONS LFS per cent trailing three months
Claimant Count m July 1.593 ONS Million
Claimant Count % July 4.9% ONS per centage
PPIs output August 2.2% ONS Manufacturing prices output
PPIs input August 1.4% ONS Manufacturing prices input
GDP change Q2 -0.5% ONS year on year comparison
Manufacturing August -0.5% ONS year on year comparison

11. The Saturday Economist johnashcroft.co.uk
The Saturday Economist is a round up of the The publication of this document should not be
week’s economics news for the UK published construed as the giving of investment advice.
on the web site johnashcroft.co.uk.
Forecasting is subject to frequent revision
The information is also available as a PDF Please remember we are forecasting the output
download. of the Office for National Statistics which may,
of itself, be subject to revision.
The information was originally published in
short form in the Sunday Times and Croissants All views expressed in the Saturday Economist
weekly blog post and has been expanded are my own. Information is intended to provide
following requests for more information. a general outline of the subjects covered. It
should neither be regarded as comprehensive
The material in the Saturday Economist is nor sufficient for making decisions, nor should
based upon information which we consider to it be used in place of professional advice.
be reliable but we do not represent that it is
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or omissions of opinion or fact. loss arising from any action taken or not taken
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In particular, no reliance should be placed on Data adapted from the Office for
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Open Government Licence .v.1.0.

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