COMMENT: Mixed economic messages | Asos out of fashion

THERE were more mixed messages on the economy yesterday, but on balance they are unlikely to put pressure on the Bank of England to lift historically low interest rates before the current City consensus expectation of next spring. UK inflation fell to 1.5 per cent in August, the joint lowest seen over the past five years, from 1.6 per cent in July.

Martin Flanagan
Martin Flanagan

Most City economists now believe inflation will remain below the Bank’s 2 per cent mid-term target until the latter part of 2015, and that obviously gives policymakers latitude to delay a rate rise to allow the recovery to bed in even more.

However, the Bank will have been concerned at the news that house price growth surged a stonking 11.7 per cent in July – the fastest yearly pace in seven years, ie just prior to the financial crash first heralded by the collapse of Northern Rock.

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A renewed housing price bubble and bust is probably one of the things that keeps Bank governor Mark Carney and his colleagues on the monetary policy committee (MPC) on tenterhooks as to when fiscal policy needs to be tightened.

Broader inflation, though, remains benign. Petrol, non-alcoholic drinks and food prices all fell in the year to August, and there are other factors that should help consumer prices stay low in the coming months.

Global commodity prices are being kept down by weaker demand, partly from previously booming markets such as China, and that should help keep factory gate inflation lower and mean there is less to feed through into high street consumer prices.

Data from the Office for National Statistics confirmed this, with factory gate prices falling 0.3 per cent in August, the steepest fall since September 2009.

Pay pressures are also still modest (apart from starting salaries, where there has been a boost), another positive for a low inflationary outlook.

In short, a house price surge looks the one fly in the ointment at the minute. Otherwise, it appears we should see the winter through without that long-awaited rise in rates.

Asos fall from grace still far from terminal

THE re-boot is on the other foot for online fashion retailer Asos. Once the darling of the stock market, the company has now issued its third profit warning in seven months as the strength of sterling continues to hold back its previously flourishing overseas operations.

The strategy now is to cut prices overseas to try and return to the stellar growth that became second nature for Asos in recent years.

Founder and chief executive Nick Robertson knows it is vital to get this right and restore growth at those operations – from the United States to Germany, Spain, Russia and China – as they account for nearly 60 per cent of group revenue.

As such, they are pivotal in Asos meeting one of its key promises to the stock market, of doubling its current turnover to £2.5 billion (admittedly over an undisclosed period).

Having floated at just 20p in 2001, shares in the group hit a high of almost £72 (7,200p) last February, giving an indication of how much of an investor favourite the group became.

Yesterday, on the third profit warning, the stock closed down 8.9 per cent at 2,207p. A fall from grace, then, that is still far from terminal but a cause for concern.

Asos has to show that it has the business model to come out the 
other side.