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NFDA Economic ReportBack

nfdaThe good news is that the UK economy is growing, although this growth is slowing. The GDP rate in the first 3 months of 2015 was only half of what it was in the last quarter of 2014 and annual GDP growth is slightly smaller, while inflation is stuck at 0.0%; a record low. Eurostat, the EU’s statistical office, sees this as a continuing loss of momentum in the economy. The deficit is a source of further gloom; in 2014 it was the largest since comparable records began. Things don’t get any better if we compare the UK to other G7 countries; our current account deficit was the largest as a proportion of GDP in 2014.

There is some further bad news: part time hours are “at a historic high” and productivity growth has been “disappointing” according to the Office of National Statistics. Rising self-employment, responsible for a third of the increase in employment since 2010, could reflect “hidden” unemployment; where workers unable to get the jobs they really want become ‘self-employed’. This could be an issue as 15% of workers now fall into this category. However, a recent report by the Bank of England rejects this idea and concludes that the change reflects longer term trends.

Being more positive employment figures could bring a smile to an economist’s face. Unemployment has fallen substantially and is almost back to pre-Recession average levels. More people are employed than this time last year, with 73.5% of people aged 16 to 64 in work in the first quarter of 2015. This good news isn’t limited to one region: unemployment has fallen across the country, although the North East has the highest unemployment, while the South West has the most people in work. Youth unemployment is falling too, although isn’t as low as it could be. Growing numbers of workers means more people getting paid, which can only be good news for sales.

Wages are also on the rise. Comparing January to March 2015 with the same period in 2014, pay for employees in Great Britain increased by 1.9%, according to the Office of National Statistics. Let’s hope this pay rise encourages consumers to spend.

Speaking of which, in the retail sector things are looking up. In March quantity bought figures increased by 4.2% compared to March 2014. These figures do hide a decrease of 6.2% for petrol stations. In April, retail sales increased by 4.7% compared with April last year. All stores experienced growth, except shops selling mostly food. Average store prices did drop, and petrol stations were the largest contributor to this decline, with a fall of 11.5%. In fact, prices have been falling for the last 20 months. In May there was good news as sales were above average for the time of year and most motor traders saw an increase in sales volumes, according to the Confederation of British Industry. The CBI also has high expectations for June.

Interest rates are likely to stay at 0.5%, although according to the BBC, there has been a rise in real terms because of falling inflation. A cut to interest rates might be necessary to stop deflation, but this seems unlikely, and a rise in rates is not predicted until mid-2016.

The Office for Budget Responsibility forecasts give reason to hope that the more positive trends will continue. The OBR expects UK GDP to grow 2.5% this year, and believes the fall in inflation should boost real wage growth making 2015 “the first year of material growth since the crisis”. Roads and buildings should benefit from a forecasted public sector spending of £68.3 billion on capital investment. However, public sector net debt is also expected to peak relative to the size of the economy in 2014-15, at “the highest ratio since the late 1960s”.

In the first quarter, looking at the wider EU economy, GDP grew 0.4% in both the Euro Zone and in the EU28, which includes the UK. The volume of retail trade was down slightly in both zones in March 2015 compared with the previous month and in the EU28, trade in automotive fuel fell by 1.0%. But retail trade is higher than in March last year in both zones. There is further good news in that household real income per capita across the EU rose in the final quarter of 2014, if only by 0.1%. Household real consumption per capita rose by the same amount. (Source: Eurostat figures).

(Sources: Bank of England, BBC, Confederation of British Industry, Eurostat, Office for Budget Responsibility, Office of National Statistics)

 

 

Posted by Sue Robinson on 05/06/2015