The summer’s weather has been, by and large, a mixture of sunshine and showers. The economic weather has been similar, with the number of ‘positive’ economic results generally matching the number of ‘negative’ ones. In this climate it’s often best to wait and see, which is exactly what the MPC opted to do last week.
The UK economy is hardly firing when growth accelerates by half, only to reach 0.3%q/q. Yet many would settle for that given the predictions made last year. For that thank a surprisingly strong service sector that’s supporting generalised weakness elsewhere. Until the other parts of the economy start moving, growth will remain sluggish. Continue reading
Does June’s unexpected fall in the rate of inflation herald the start of a retreat? It seems unlikely. The fall in sterling that has helped push inflation higher is still filtering through into consumer prices. And even at the lower rate inflation remains uncomfortably above wage growth. That’s a considerable headwind for the economy.
Despite yet another strong set of job numbers there are still no signs of life in the UK wage growth figures. In response consumers are saving less and borrowing more. That’s not a sustainable solution.
Hope fades that the UK economy managed to step up a gear in Q2. Most estimates now suggest quarterly UK GDP growth was 0.3% in the three months to June, barely an improvement on Q1’s disappointing 0.2%. Continue reading
The UK’s propensity to borrow too much and save too little has echoes of the recent past. Yet investment is up and there’s little sign of imminent danger. Still, the Bank of England’s Financial Stability Report worries the past may be ahead of us.
“Give me a one-handed economist,” pleaded President Harry Truman, “all my economists say, ‘on the one hand, but on the other’.”
Three members of the Monetary Policy Committee voted last week to raise Bank Rate to 0.5%, a surprise to say the least. At 2.9%, inflation is above target and heading higher. Yet while employment continues to rise, wage growth is slowing, consumers are under pressure and there is enough uncertainty around to think that tightening monetary policy can wait for a while.
Why the change of tune? Some on the MPC have been surprised by the speed with which inflation has risen and they think that stronger demand from exports and investment spending will help keep growth going, even if the consumer side of the economy is feeling the squeeze. That argument wasn’t strong enough to convince any of the Bank officials to vote for a rise and one of those who voted for a hike has now left the committee. With two vacancies to be filled the MPC’s voting position could be a lot more finely balanced than we’ve been used to.
The clear winner of last week’s election was YouGov, the polling company that got the result just about right. For the rest of us, uncertainty looms. While it’s commonplace to say uncertainty is bad for the economy – and it is – we can read too much into the short-term impact of elections. The medium-term consequences will matter more.
Business surveys paint a rosy picture of the UK economy. Growth looks healthy. While still-strong job growth is supporting part of the growth in consumers’ spending, the balance is down to increased borrowing. That can’t go on forever. Will investment and exports fill that gap and keep growth on course? That’s the question for the rest of 2017.