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.
The UK economy grew by just 0.2% between January and March, a sharp slowdown from the 0.7% recorded in the final quarter of 2016. The sterling-induced rise in inflation is biting. With prices rising faster than pay, we’re tightening our belts on items of spending that are discretionary: retail, travel and leisure. Expect more of the same for a while.
The UK job market is going like a train, setting records at almost every turn. But wage growth is slipping
and prices are now rising faster than pay. For consumers, the squeeze is on and there’s more to come. Continue reading
Inflation continues to rise above the 2% target but the Bank of England sees no need to raise rates (yet). That’s the way things will remain for some time, just as long as expectations of future inflation don’t take off, pay growth remains muted and investment and export demand pick up the baton of growth from the consumer. Continue reading
For years now it has been a struggle to find anything positive to write about the Eurozone economy. Plagued by slow growth, high unemployment and intermittent sovereign debt crises it has been the developed world’s economic problem child. It’s too early yet to declare victory in the war against poor economic performance but there are signs that the region is staging a sustained, if modest recovery. Continue reading
Not for the first time, it appears inflation is making a bit of nuisance of itself. There was more evidence last week that the consumer is feeling the squeeze and its having a knock-on effect for growth.
Slower, part 1. The UK economy grew by 0.3% in Q1, down from 0.7% in Q4 2016. Weaker growth was caused mainly by a fall of 0.5% in the output of the retail and accommodation services sectors. If there’s such a thing as a good slowdown this was it. Higher inflation is squeezing incomes leaving people with a choice: run down their savings and borrow so as to sustain consumption or tighten their belts. These numbers suggest we’ve done the latter. Continue reading
UK retail sales fell in the first three months of the year, the first quarterly fall since 2013. With rising prices squeezing their incomes, it looks as if consumers have decided to tighten their belts. Continue reading
It’s perhaps tempting fate to say that we’ve never had it so good when it comes to the performance of the job market but things certainly haven’t been so strong for decades. Continue reading