By Richard Partington
The British economy is showing signs of deteriorating just as the government attempts to reassert its vision for Brexit, according to a Guardian analysis of economic news over the past month that highlights the country’s increasingly fragile position on the world stage.
Cracks are beginning to appear in the picture of economic resilience built up during the final months of 2017, when a sustained upswing in global growth helped to lift economic output in Britain. Fresh figures this week also showed the economy grew more slowly than first thought in the final three months of 2017, with GDP growth having been revised down to 0.4% from 0.5% – putting the UK at the bottom of the G7 league table.
Over the past month, the world economy has been rattled by panic in the financial markets, triggered by fears over rising inflation in the US from better-than-expected wage growth. “Just when everything appeared to be going so well [in the world economy], it was time, apparently, for a reality check,” said Stephen King, senior economic adviser at HSBC.
As ministers look to use a series of speeches to define the shape of Britain’s post-Brexit relationship with Europe, the Guardian’s monthly tracker of economic news since the EU referendum shows business activity across a broad range of sectors has lost momentum. The number of people out of work increased for the first time in almost two years, pay growth remains below the rate of inflation, and consumer spending staged a limp rebound after a torrid Christmas.
But despite signs of weakness, the Bank of England is moving closer to raising interest rates from as early as May, arguing last week that the growth rate for the economy has been lowered by the Brexit vote – pushing it to raise the cost of borrowing to tackle stubbornly high inflation. The Bank’s governor, Mark Carney, also said the leave result had made people poorer.
Writing in the Guardian, David Blanchflower, professor of economics at Dartmouth College and a former MPC member, said the jobs market “turning down” was a sign for Threadneedle Street to put its plans on ice.
“You don’t raise rates, which causes unemployment to go up, when unemployment is already rising. A week is a long time in economics,” 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 before their release, and in five cases the outcome was worse than expected.
The latest dashboard shows British households coming under significant pressure, as inflation stuck at its highest level for almost six years last month despite expectations for a fall. Stoked by the pound’s weakness since the EU referendum, the rate of growth in prices has been stubbornly high for several months now - although wages are at last beginning to rise.
The Bank’s agents suggested British workers are set for the biggest annual pay rise in a decade this year, while pay growth picked-up in January. Meanwhile, average weekly earnings excluding bonuses rose by 2.5% excluding bonuses in the final three months of 2017, up from a rate of 2.3% in the three months ending in November, according to the Office for National Statistics.
The global economy helped drag Britain up by the bootstraps at the end of last year, benefiting export-facing businesses who could exploit the weak pound to sell goods and services abroad. However, pay growth is still lagging behind inflation – damaging consumer spending.
Writing in the Guardian, Andrew Sentance, a former member of the Bank of England’s rate-setting monetary policy committee (MPC), said the UK economy is currently feeling the pull of two opposing forces.
“The strength of the global economy and healthy growth in other European economies is boosting growth in export-oriented sectors ... [But] consumers continue to be squeezed by high inflation while Brexit uncertainty is holding back business investment,” he said.