There were no shocks in the GDP and labour market news that landed last week. The data was consistent with the emerging picture of a subdued but steady recovery. The economy seems to be growing again, supported by rising real wages. Further reassuring and unsurprising economic news would be very welcome, with fresh inflation figures and another Bank Rate decision due over the next few days.
Growth mindset. It takes time for statistical boffins to produce GDP estimates. Hence, last month brought news of December’s GDP figure – prompting ‘technical recession’ headlines (in relation to the second half of 2023). And just last week we learned that GDP grew by 0.2% between December and January. That was not surprising, not least because the estimate is so backward-looking: business surveys had suggested that economic activity was expanding, and we already knew that retail sales rebounded 3.4% month-on-month in January. While the new information supports the view that a recovery is underway, one month’s progress is just a small step forward.
Mixed bag. Northern Ireland’s economy looks to have contracted in the fourth quarter of 2023. Industrial production (mostly manufacturing) rose by 0.4% q/q but this increase is more than offset by a 0.3% q/q fall in private sector services. Business services & finance bucked the wider decline amongst its service sector peers with output rising by 1.4% q/q to a 10-year high and 29% above its pre-pandemic level. But sectors reliant on consumer spending rather than business-to-business activity have suffered. Retail sales fell for the second successive quarter in Q4 with the 0.6% q/q decline taking the retail sales index back to a four-quarter low. Unlike the buoyant business services & finance sector, sales are some 6.3% below Q4-19’s pre-pandemic levels.
Slow but steady. The UK labour market seems to be loosening, despite persisting data quality concerns around the ONS’s Labour Force Survey. Vacancies continue to trend down, hiring activity is falling, redundancies notifications are higher than the equivalent period over the past three years, and consequently, candidate availability is rising. This is yet to manifest in a major uptick in the unemployment rate (which rose a meagre 0.1 ppts in the 3 months to January, reaching 3.9%) but a look at wage growth numbers should give more confidence to the MPC to cut rates by mid-year.
Turning point. Northern Ireland’s record run of employment growth could well be over. According to the Quarterly Employment Survey, the number of employees working fell by over 5,000 in Q4 2023 marking the first decline in eleven quarters. Both the public and private sectors shed jobs with the former posting its biggest quarterly decline (-1,710 jobs) in nine years. While construction and manufacturing recorded relatively modest gains and losses respectively, services posted its biggest quarterly decline (-5,030) in employment to date. 70% of the decline in service sector employment was contained within wholesale & retail trade and administrative & support activities. Although even the information and communication industry (includes ICT) is leaking jobs too.
Public sentiment. UK household inflation expectations for the next 12 months continued to fall and eased to 3.0% in February from 3.3% in November – the lowest since August 2021 – according to the BoE’s quarterly survey. Why does it matter? Well, in an economists’ ideal world inflation expectations would be firmly anchored in line with inflation target (i.e., 2.0%) and these expectations would not be affected by the current inflation rate. In this case, the so-called second round effects from higher inflation to wages and prices would be minimal. Certainly, good news for the BoE then given that public perception around inflation has shifted downwards. What’s more, public satisfaction with the BoE’s inflation control shows a slight improvement.
Moving again. It’s hard to keep the UK housing market down. Yes, there is much mortgage misery, with arrears hitting a seven year high in Q4 (albeit just 1.1% of outstanding balances; one-third 2009 rates). And yes, homebuying plunged in 2023: gross mortgage lending fell 34% year-on-year in Q4. But surveyors are once again upbeat. RICS’ new instructions balance jumped 9 points to a three-year high, of +21, in February. Buyer enquiries are rising modestly too. That bodes well for a recovery in sales through 2024. A growing balance of surveyors expect a return to house price growth over the next year too (+36).
Pensioner progress. The recent Budget by the Chancellor didn’t introduce new measures for pensioners, focusing instead on tax cuts for working-age families. But since 2010, as the Resolution Foundation detail in a new report, pensioners have enjoyed favourable tax and benefit policies. The ‘Triple Lock’ and New State Pension have particularly benefited them, with an average improvement of £1,000. These policies have significantly reduced poverty among pensioners, marking a stark contrast to the 1990s when they were the most vulnerable societal group to poverty. Today, pensioners are the least likely age group to live in poverty, providing an example of the long-term benefit of favourable policy commitments.
In bloom. It’s the annual shuffle of the inflation basket – a snapshot of Britain’s changing tastes. So, what are we popping in the trolly, and what are we leaving on the shelves? We’re switching from popcorn to rice cakes and swapping hot rotisserie chicken for seeds (sunflower and pumpkin). Air fryers are in (do you own one?). Hand gel is out. A covid essential now neglected. And a bit of retro revival, for the first time since 1992 vinyl is back. Coincidentally the year the ABBA revival began and Nirvana, also enjoying a Zoomers’ revival, went mainstream with Nevermind.
Green shoots. Last month the CBI reported estimates that the UK’s net zero economy was growing at 9%. This month the ONS reckons that the number of green jobs rose 8.4% in 2022, the most recent year that estimates are available for. Measuring greenness is tricky as it cuts across many industries and different business activities, so the ONS takes three different approaches, looking at green industries, occupations, and firms. And its jobs in these green industries (including renewable energy, energy efficiency, and waste management amongst others) which grew to over 600,000 in 2022. No wonder net zero plays such a big part of most industries’ strategies.
‘Last mile’ challenge. US inflation came in hot again in February, 3.2% yoy versus a consensus expectation of 3.1%. Furthermore, three and five-year expectations of consumer price inflation have ticked up in the last month, as have break evens (the market’s best guess at future inflation). But details within the release somewhat brighten the outlook. For example, a 3.6% jump in airfares was possibly a one-time response to higher jet fuel costs. On the job market front, jobless claims were lower than expected in the week to 9th March, at 209k (versus 218k expected), on top of a downwardly revised figure from the week before, indicative of very low layoff rates. Meanwhile, retail sales rebounded slower than expected in February, signalling cooling in spending as consumers exhaust their savings and remain cautious about borrowing. As of the latest, the market expects 3 cuts this year, beginning in June or July.