Britain’s economy is showing signs of coming through the worst of its 2017 slowdown, according to a Guardian analysis, as exporters benefit from an improving global economy and inflation remained steady.
In the week after Chancellor Philip Hammond’s budget outlined the biggest growth downgrade for the UK since the Conservatives came to power in 2010, the Guardian’s monthly tracker of economic indicators nonetheless shows Britain’s immediate economic situation to be an improvement on earlier this year.
The country has kept on an even keel as exporters were boosted by growth in global trade, while the improvement in the outlook for the rest of the world is helping to offset weakness at home.
Households continue to feel the squeeze from inflation, prompted by the weak pound since the Brexit vote, but the rate at which prices rose in the UK stayed at 3% against expectations for a further increase. Still, questions remain over the UK’s future trading relationship with Europe, while Hammond’s budget revealed a forecast for a slowdown in economic growth for the years to come.
Writing in the Guardian, Andrew Sentance, a former member of the Bank of England’s rate-setting monetary policy committee (MPC), blamed Brexit for the malaise and said the chancellor’s “bits and pieces” budget would do little to improve the health of the economy over the medium term.
“It is hard to avoid the conclusion that the Brexit process – which has added to investment uncertainty and squeezed consumers – is the main reason why the British economy is underperforming so badly at the moment,” he said.
To gauge the impact of the Brexit vote on a monthly basis, the Guardian has chosen eight economic indicators, along with the value of the pound and the performance of the FTSE 100. Economists made forecasts for seven of those barometers ahead of their release, and in five cases the outcome was better than expected.
The latest dashboard shows Britain cut its trade deficit with the rest of the world in October, as the weak pound makes UK-manufactured goods more attractive to foreign buyers. That will steady the nerves of businesses fearing a slowdown in demand for their goods due to uncertainty over tariffs and border controls that could be enforced when the UK leaves the EU in 2019.
The latest figures show the gap between what Britain imports and exports fell to £2.75bn in September, a better result than forecast by City economists. Ministers may be concerned, however, that the improvement was down to better export sales to the EU, while trade with the rest of the world declined.
Over the last month, key barometers of sentiment among companies about business activity pointed to the strongest economic growth for half a year, even as optimism among firms about the future evaporated to the lowest levels seen in 15 months. The Markit/CIPS purchasing mangers’ index (PMI) for the country’s key services sector recorded a big jump in October, coming in at 55.6 from 53.6 a month earlier. The PMI measures, where anything above 50 indicates expansion, are tracked for early clues on official GDP figures.
There was more positive news for squeezed British households, facing almost two decades without pay returning above pre-financial crisis levels, that inflation held steady in October – against expectations from the Bank of England for a rise.
Cheaper fuel and deep discounting by retailers cancelled out the impact of surging food prices to leave the consumer price index (CPI) at 3% for the second consecutive month.
High street sales also beat City expectations by bouncing back in October, gaining by 0.3% compared with a monthly drop of 0.7% seen in September. Still, on an annual basis the UK recorded its first year-on-year drop in consumer spending since 2013, illustrating the pressures facing households from the rising cost of living.
Economists will be looking at the key Christmas shopping period ahead as well as the outcome of the Black Friday discounting period in November to gauge the resilience of consumer spending, which is a key driver for the health of the economy.
Official figures appear to show England becoming a happier place in the year since the Brexit vote – despite research showing that households are now each £600 a year worse off following the referendum. Measures for happiness and wellbeing showed no change for Scotland, Wales and Northern Ireland.
But there are worrying signals for the road ahead. Hammond revealed at the budget a painful downgrade in economic growth of around half a percentage point annually in the coming years.
Jobs figures showed the first fall in the number of people in work since 2013 in the three months to September, in the first signs that the employment boom of recent years could be coming to an end. There was no change in the jobless rate in the latest figures, staying at the lowest levels since 1975.
However, the low jobless rate is still having little impact on the wages of British workers, despite expectations for their bargaining power to demand higher pay and better working conditions to improve. There was no increase for the annual rate of earnings growth, remaining at 2.2% in the three months ending in September from the same level for the period ending in August.
Still, the strong levels of employment growth in the earlier months of this year have been positive for the public finances, with the Treasury raking in more money from taxes than forecast by the Office for Budget Responsibility (OBR) for the year to the end of October. But rising inflation has also pushed up the cost of debt interest paid by the government – leading to a worse than expected performance for the public finances last month.
There are questions about the strength of the economy over the coming months, after some business leaders have suggested failure to agree a transitional deal to smooth Britain’s exit from the EU over several years following the end of Article 50 talks by the end of 2017, or early 2018 at the latest, will force them to alter their investment decisions or move staff to other countries.
The government is currently mired in talks over the Irish border, while ministers must also make sufficient progress on a financial settlement with Brussels to leave the EU as well as reach an agreement over the rights of EU citizens in the UK. The OBR did not factor in failure to reach a deal over Brexit into its gloomy forecasts for the health of the economy alongside the budget.
Writing in the Guardian, David Blanchflower, another former member of the Bank’s MPC, said this was “unduly optimistic”, adding that deadlock will put business investment on hold. This in turn will limit productivity growth in the UK – which the OBR estimates will pick-up over the coming five years, albeit at a slower pace than forecast.
“There is no reason at all, in my view, to believe any take-off in productivity will happen any time soon,” said Blanchflower, adding: “The economy could grow much more slowly than even the OBR’s horrid forecasts. I am still waiting for any good news from Brexit.”
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