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Andrew Sentance
Senior adviser to Cambridge Econometrics and member of the Bank of England’s monetary policy committee (MPC) from 2006-11
The evidence from the real economy over the past month suggests little change to the pattern of stagnation we have seen for most of this year.
Both the CBI survey and the official index continue to point to falling manufacturing output. So the prospects for any growth are dependent on the performance of the services sector. Yet the latest PMI survey gives a reading below 50, the weakest for more than three years, and consistent with a contraction in output. On this evidence we could see another decline in GDP in the current quarter, or at best a flat economy.
The UK economy has been heavily dependent on rising consumer spending over the past few years, but here we are also seeing some negative signals. Retail sales dropped back in October, though they remain more than 3% up on a year ago. The latest survey of consumer confidence is now the weakest we have seen in six years.
Households in work continue to see positive growth in real earnings, even though wage growth has dropped back to 3.6%. With annual inflation running at 1.5%, this still gives a positive gap of about 2% per annum between wage and price increases. But uncertainty about the general election and Brexit will continue to exert a drag on consumer spending and could affect the vital Christmas spending period.
Other information from the labour market is downbeat. Employment dropped back in the third quarter compared with the second quarter, and has shown very little growth over the course of this year. The vacancy rate has also fallen back further, continuing a negative trend that has been the pattern throughout 2019.
Some of the current uncertainty could dissipate if we see a decisive outcome from the general election. But if we end up with another hung parliament, which is entirely possible, the economic doldrums are likely to continue into next year.
David Blanchflower
Professor of economics at Dartmouth College in the US and member of the Bank’s MPC from 2006-09
No good news again. The UK economy still remains in the doldrums with little sign that things are about to get better; my guess is they are about to become a whole lot worse before they get better, with all the uncertainty in the air.
The one bright spot, especially for those skiers heading to the Alps over the holidays, is that sterling is stronger, having picked up recently to about $1.30 and €1.15 on news that the UK was not to about to spiral out of the EU at the end of October.
Sadly, economic growth in the UK has ground to a halt and there is no sign of a turnaround. GDP growth remains weak and in fact declined in September by 0.1% after a 0.2% fall in August. Adding to that gloom was some new data on what Keynes called animal spirits or business confidence. This month saw the first IHS Markit/CIPS Flash UK Composite purchasing mangers index (PMI) based on approximately 85% of usual monthly replies, showing the sharpest drop in UK private sector output since July 2016. The composite registered 48.5 in November, down from 50 in October and below the crucial 50 no-change value.
The UK is also a long way from full employment despite the unemployment rate dropping to 3.8%, which is well below the 4.5% level it achieved in the boom years between January 2000 and the start of the recession in April 2008. With unemployment so low, wages growth should be increasing. Instead it is going backwards. For an answer look at underemployment.
The underemployment rate is calculated as the proportion of workers who say they are part-time but want full-time jobs. In the most recent data, there are approximately 865,000 of them versus 1.3 million unemployed. In May 2004 the rate was 1.87% and today it is much higher at 2.64%. It turns out that elevated underemployment rate is what is keeping wage growth in check.
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