Professor of economics at Dartmouth College, New Hampshire, and member of the Bank of England’s monetary policy committee from June 2006 to May 2009
The UK labour market is starting to show signs of slowing. The number of people in work fell by 56,000 during the three months to October to stand at just over 32 million – the steepest drop since mid-2015. It also followed a smaller fall of 14,000 in the three months to September.
A “Brexodus” appears to be getting under way as net migration fell by 106,000 to 230,000 in the 12 months to June. In part this is because of the fall in the pound which lowers take-home earnings.
The flow of migrants into the UK, who grease the wheels of the labour market, is now at its lowest level since records began. By that I mean they make the UK economy more flexible and able to respond more quickly to changes in demand. They are free to move about the country.
Declines in the inflow of these skilled migrants will lower GDP as it will reduce mobility in the UK economy and cause skill shortages. Not unrelated to that there are already signs of the housing market also slowing. Migrants need houses. According to the latest monthly snapshot from the Royal Institution of Chartered Surveyors, house prices in London and the south-east are falling already.
Special focus needs to be put on real wage growth, which is a measure of wage growth adjusted for changes in inflation. For the seventh month in a row, real wages have fallen.
Real wages are now below what they were in May 2010 when the Tory-Lib Dem coalition took office and have not changed at all over the last 16 months. They are still 7% below what they were at the start of the Great Recession in 2008.
There is no sign that is going to change any time soon, as inflation is falling only slowly and there is no sign that there is going to be a pick-up in nominal wage growth, despite what the Bank of England’s monetary policy committee and the Office for Budget Responsibility have claimed for the last seven or eight years.
Pay experts XpertHR reported this week that the pay norm of 2% continues. “Despite unemployment falling and inflation rising through the year, employers have refused to budge from the muted pay increases they have favoured for a large part of the past five years,” they said.
Wages rising at 2% with prices rising at 3% is not good. Living standards will continue to fall for the foreseeable future.
Senior economic adviser at the PwC consultancy and member of the Bank of England’s monetary policy committee from October 2006 to May 2011
The latest economic data has been mixed, but there has been some positive news on consumer spending and on the global economy to offset continued evidence of a jobs slowdown. Investment uncertainty is still likely to remain a drag on the UK economy next year.
A key issue driving the slowdown of the UK economy this year has been weakening consumer spending. The key short-term indicator of consumers’ expenditure – the volume of retail sales – has fallen back from an annual growth rate of over 5% a year ago to just 1%, according to the latest figures for the autumn.
However, a lot of this weakness reflects the squeeze from rising inflation and heightened political uncertainty in the early months of this year. More recently, retail spending has returned to a growth trend. Growth over the past eight months has been equivalent to around 4% per annum. The key issue for retailers will be whether we see this type of growth rate sustained into the crucial Christmas and New Year sales period.
The world economy continues to perform well, with all the three main regions of the global economy – North America, Europe and Asia – growing at reasonably healthy rates.
A good barometer of global economic growth is the growth of airline traffic – both passenger numbers and cargo volumes. This year the trade body for airlines, IATA, estimates global passenger numbers will be 7.5% up on 2016, the strongest growth for a decade with the exception of 2010 when there was a strong bounce back from the traumas of the global financial crisis. Air cargo volumes are projected to be up by 9-10% this year.
Alongside this better news on consumer spending and the global economy, however, we have seen a significant slowdown in employment growth and the unemployment rate is no longer falling. It would not be surprising if unemployment started to edge up next year in the UK.
Investment uncertainty continues to be a major dampener on the growth of the UK economy. 2016 and 2017 are likely to turn out to be the weakest years for UK business investment growth since the global financial crisis.
2018, therefore, looks set to be a relatively sluggish year for UK economic growth – with GDP rising by just 1.4% according to the latest PwC forecast. The UK will continue to languish at or close to the bottom of the global growth league next year.
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