The background
This Spring Statement was initially supposed to be little more than an update on economic and fiscal forecasts. However, it has been overtaken by events; namely the cost-of-living crisis which has been exacerbated by the Russian invasion of Ukraine. As a result, the Chancellor, Rishi Sunak, has had to add a number of policy measures to today’s speech and to revisit some of the tax rises he announced last Autumn.
Over recent weeks, the UK has been battered by Dudley, Eunice and Franklin. ‘G’ will be Gladys and we await to hear the ‘H’ name of the subsequent storm that follows. Metaphorically, we are already aware of the advancing ‘T’ storm, or Tax storm. April will see us showered with more tax increases most notably the hike in National Insurance Contributions.
It used to be that people would do anything for a job. Today, it’s more like – to paraphrase the title of the late Meatloaf’s iconic song – ‘I would do anything for a job, but I won’t do that’.
Companies, particularly in certain sectors, are struggling badly to access the skills they need. This is perhaps most acute in sectors such as healthcare and food processing because job hunters are taking advantage of the jobs market being a seller’s market. They can afford to be more choosey about the work they undertake in a way they couldn’t in the past. Many are therefore opting for other industries where the salaries are perhaps higher, and conditions perceived to be less challenging.
The annual pace of UK CPI inflation accelerated from 5.1% in November to 5.4% in December representing the highest rate since March 1992 (+7.1% y/y). UK inflation had peaked at 8.4% in April and June of 1991. Consumer goods inflation (+6.9% y/y) is running at twice the rate of consumer services inflation and is at its highest rate since July 1991 (+7.0% y/y). Goods inflation is expected to breach its record high of 7.4% y/y (Sep/Oct-90) in the coming weeks. Consumer services inflation (+3.4% y/y) remains more subdued by comparison and is at an eight-and-a-half-year high. By comparison, consumer services inflation was running into double-digits in late-1990 and 1991 and peaked at 12.1% in April 1991. Services inflation will be closely watched in the coming months as the strength of pay settlements will feed into this measure. Wage increases will also filter through into the cost of consumer goods.
Given what has happened to the economy over the last two years, Northern Ireland’s headline labour market statistics are a veritable winter wonderland. Unemployment is at 3.1% – one of its lowest readings on record. Meanwhile the number of employees on Northern Ireland’s payrolls hit another record high in December and almost 20,000 above March 2020’s pre-pandemic high. Indeed, no other UK region has witnessed a stronger rebound in payrolls growth. It is a similar story with median earnings growth over the last two years.
The so-called Global Uncertainty Index hit a record high in 2019 before the word Coronavirus had even entered our consciousness. But the last 20 or so months have completely recalibrated the parameters of what uncertainty is. In the time since, businesses have had their worlds turned upside down and back again – things that they thought would never happen, did, and things they would have absolutely expected to happen didn’t – and have also therefore had to reset as well.
Continue readingDolly Parton famously sang about the grind of working 9-5 and the routine of stumbling out of bed, making coffee and battling the traffic five days a week. But the pandemic has turned that on its head and the routine of work has changed for many workers forever. It has shown that there is perhaps a whole new way to make a living.
There has been no shortage of drama on the economic and political fronts during recent weeks. And the drama is focussed on shortages.
Northern Ireland’s labour market has truly weathered its biggest economic storm to date. Eighteen months ago job losses and a surge in unemployment (above 10%) were viewed as a ‘slam dunk’ outcome. Not so. Fortunately unprecedented actions by the UK government, not least the introduction of the Job Retention Scheme, prevented a pandemic turning into an economic depression. The Job Retention Scheme served the economy well by retaining jobs during the lockdowns and throughout the worst stages of the pandemic. Following a vaccine rollout and a lifting of restrictions, the so-called furlough scheme expired on 30 September. As of the 31 August, the latest data available, there were still 29,700 jobs on furlough with a 50:50 split between full and partial furlough.
For those individuals still on furlough last month, the prospects of finding a job, albeit not necessarily the exact or ideal job sought, couldn’t be better. In 2020 labour market concerns focussed on the potential for massive job losses. Fast forward to autumn 2021 and the unemployment rate, currently 4.1%, isn’t and won’t be a cause for concern. Similarly, Northern Ireland’s payrolls data (excludes self-employed) returned to pre-pandemic levels in June 2021 with record employment levels in each of the last four months to September 2021. Granted this figure is flattered by the 29,700 individuals on furlough. It remains to be seen what proportion of these migrate to employment, unemployment and economic inactivity in due course. Nevertheless, Northern Ireland has experienced the largest payroll growth, relative to pre-pandemic levels, of all the UK regions. However, Northern Ireland has also experienced the steepest fall in self-employment (-31%) within the UK.
For those individuals still on furlough last month, the prospects of finding a job, albeit not necessarily the exact or ideal job sought, couldn’t be better. In 2020 labour market concerns focussed on the potential for massive job losses. Fast forward to autumn 2021 and the unemployment rate, currently 4.1%, isn’t and won’t be a cause for concern. Similarly, Northern Ireland’s payrolls data (excludes self-employed) returned to pre-pandemic levels in June 2021 with record employment levels in each of the last four months to September 2021. Granted this figure is flattered by the 29,700 individuals on furlough. It remains to be seen what proportion of these migrate to employment, unemployment and economic inactivity in due course. Nevertheless, Northern Ireland has experienced the largest payroll growth, relative to pre-pandemic levels, of all the UK regions. However, Northern Ireland has also experienced the steepest fall in self-employment (-31%) within the UK.
You may recall that after the Global Financial Crisis unemployment didn’t rise as high as initially anticipated. That was because pay restraint and falling real wages (i.e. wage increases below the rate of inflation) did the heavy lifting in the labour market adjustment. If pay hadn’t fallen unemployment would have been even higher. There was a sustained period from 2011 – 2014 when UK inflation exceeded average earnings growth which squeezed household incomes. From 2015 onwards the incomes squeeze receded and eventually reversed with real earnings rising again (i.e. wage growth exceeding inflation). Those on the lowest earnings have benefited significantly from the substantial increases in the National Minimum Wage.
We are now back in that same place with the ‘cost of living crisis’ phrase appearing with increasing regularity. Inflation (UK CPI) looks set to exceed 4% in the coming months and could well test the 5.2% peak that occurred September 2008 next Spring. While skills shortages in some sectors (e.g. HGV drivers) are experiencing inflation busting pay rises that is not the norm. With the average pay packet likely to rise by 2-3% over the next 12 months or so that will fail to keep up with inflation. As a result, real incomes and the purchasing power of the pound in your pocket will fall.
As in the last cost of living crisis that started a decade ago, Northern Ireland will be more exposed than other UK regions due to its higher concentration of low paid jobs. Higher inflation is not the only headwind facing households and local businesses. Next April will see the planned hike in National Insurance Contributions come into effect. The combined inflationary and tax squeeze will impact consumer spending and those sectors reliant on it.
Recessions in the 1970s and 1980s focussed on the unemployment rate as the key metric determining how painful economic conditions were. Simply having a job invariably provided a guarantee against poverty. But as we saw in the last cost of living crisis, having a job doesn’t necessarily protect a household from poverty. Despite unemployment remaining at historically low levels, in work poverty is expected to rise in the months ahead. For many, an increasing share of the pandemic savings may now be required for utility bills rather than to assist a consumer led recovery. Rates of pay and inflation will be the most closely watched statistics over the next 6 months or so. Whereas focussing solely on the unemployment rate is so last year.
Two weeks ago NISRA’s Index of Services and Industrial Production surveys for Q2 2021 revealed that economic output was closing in fast on its pre-pandemic level. For example, manufacturing output was less than 1% below the pre-pandemic level of Q4 2019 while private sector services was just over 1% below the same benchmark. Today we got a more complete picture with the release of the Northern Ireland Composite Economic Index (NICEI) and the Index of Construction for the second quarter.
