The Guardian - 31.07.2019

Section:GDN 1N PaGe:29 Edition Date:190731 Edition:01 Zone: Sent at 30/7/2019 19:27 cYanmaGentaYellowb

Wednesday 31 July 2019 The Guardian •

29

125

120

115

110

100

105

2015 2020 2025 2030

UK economic growth

Index. 2015 = 100 • August 2019 forecast

• No deal • No deal + policy response*

Source: Niesr. *Bank of England cuts interest

rates, government increases spending

Wages growth

Average earnings annual growth, three

months ending in month shown, %

3

2

1

Source: ONS

Jun 2016 Jun 2017 Jun 2018 May 2019

0

80

60

40

20

0

Apr Jun Aug Oct Dec Feb

Government borrowing

Cumulative public sector net borrowing, £bn

• 2015-16 • 16-17 • 17-18 • 18-19 • 19-20

Source: ONS

Retail sales

Month-on-month change, % seasonally adjusted

1.0

2.0

-1.0

-2.0

Jun 2016 Jun 2017 Jun 2018 Jun 2019

Source: ONS

0

-10

-20

-30

20

10

0

30

Jun 2016 Jun 2017 Jun 2018 Jun 2019

Source: Rics

Rics house price indicator

Proportion of respondents reporting a rise

in prices minus those reporting a fall, %

6

Wage growth rises

despite Brexit fears

British wages rose at the

fastest pace for more

than a decade as the UK

jobs market continued

to defy the broader slowdown in the

economy as Brexit looms. Workers’

pay before bonuses in the three

months to May rose by an annual

3.6%, the biggest rise since 2008;

including bonuses, pay rose by

3.4%. Both metrics were higher than

economist s forecast. Despite the

seemingly buoyant conditions in the

jobs market, with unemployment

remaining at the lowest levels since

the 1970s, there were signs the UK’s

jobs boom was fading. Employment

rose by just 28,000 in the latest

quarter, below expectations.

Better than forecast

7

Retail sales growing

unexpectedly

Demand for secondhand

goods from charity shops

and antiques auctions

provided an unexpected

boost for UK retail sales in June. In a

sign of consumers continuing to take

the heightened levels of political

turmoil over Brexit in their stride,

the volume of goods sold in June

increased by 1% on the month. Sales

were up on the same period last year

by 3.8%, beating the forecasts of

City economists. Economists said

that rising wage growth and steady

infl ation had helped rebuild the

spending power of UK consumers.

Better than forecast

8

Worsening state of

public fi nances

Government borrowing

rose in June to the

highest level in four

years, indicating weaker

economic growth feeding through

to the nation’s fi nances. In a reality

check for Boris Johnson as he talks

of higher public spending and tax

cuts, the shortfall between spending

and tax receipts rose to £7.2bn in

June from £3.3bn the same month a

year ago. Economists had forecast

a June budget defi cit of £3.9bn.

Analysts have warned that a no-deal

Brexit could cause government

borrowing to rise even further.

Worse than forecast

9

Property market stages

gradual recovery

The impact of

uncertainty on the

property market

showed signs of easing

in June, as interest among buyers

rose and sales increased. The Royal

Institution of Chartered Surveyors’

house price index, which shows

the diff erence between members

reporting price rises and falls ,

improved to -1 in June from -9

in May. Hitting the highest level

since August last year , the gauge

suggested prices were still falling in

London and England’s south-east ,

but rising across the remainder of

the country. Better than forecast

10

Another thing

... is the UK in

recession?

The no-deal

risk and lack

of clarity may

have already pushed Britain into

recession. Growth has stalled in

recent months and investment

by businesses has faltered. The

National Institute of Economic

and Social Research warned that a

no-deal could trigger even sharper

downturns in 2020. The BoE could

cut interest rates and the Treasury

raise public spending and cut taxes.

But this would mean an increase in

borrowing levels – a breach of Tory

commitments to cut the defi cit.

Analysis

Parity of the pound

and the US dollar is

not out of the question

The trends in orders

and output are the

worst for 10 years

D av id

Blanchfl ower

Andrew

Sentance

D

onald Trump lost

the popular vote in

2018 but still had 650

times more people

voting for him than

Boris Johnson did last

week (63 million versus 92,000). The

question now is what Johnson can

deliver on Brexit and the economy,

assuming he can pass legislation

with a slim majority that could

vanish into the ether.

His occupancy of No 10 may well

be short-lived, given he has just 100

days to deliver on his dreamland

Brexit pledges. An economically

disastrous no-deal Brexit seems

increasingly likely.

The markets did not move much

at fi rst on the news of Johnson

stepping up to the plate, but

sterling has since sunk sharply.

Uncertainty, rather than Britannia,

rules the waves. Parity of the pound

and US dollar is not out of the

question.

The latest labour market

release show s that unemployment

remain s at 3.8%, with wage growth

remaining steady at 3.4%. Still,

real wages are 5% below pre-

recession levels and real average

weekly earnings are up just £1 in

the last eight months to £498 in

May. Employment growth has also

slowed to a crawl, growing 3,000 on

the month.

Growth in the UK seems to be

slowing. The CBI’s industrial trends

survey suggests factory orders have

slumped, while fi gures from the

services and construction sectors

have also been poor.

The weak data led the National

Institute of Economic and Social

Research, a thinktank, to argue

that economic growth in the UK

has stalled and there is a one in

four chance the UK is already in

recession. The Offi ce for Budget

Responsibility warns a no-deal

Brexit could shrink the economy

by 2% by the end of 2020 and push

unemployment above 5%. The IMF

reckons matters could be much

worse, with an impact for the global

economy, too.

Company bosses continue to

warn Johnson against pursuing a no-

deal Brexit and he ought to listen.

Such a scenario is the biggest risk

to the UK economy and would be a

disaster for living standards.

A lot of nerve calming is going to

be needed in the months ahead.

David Blanchfl ower is professor of

economics at Dartmouth College

in the US and sat o n the Bank of

England’s monetary policy committee

from 2006 to 2009

O

ne of the most striking

pieces of economic

data this month is the

latest results of the

CBI industrial trends

survey, which has

monitored British manufacturing

industry for more than 60 years.

The survey shows manufacturing

output going into reverse, with

both domestic and export orders

weakening. The trends in orders and

output are the worst we have seen

for 10 years.

Business confi dence has dropped

sharply and investment plans are

being cut back. Uncertainty about

demand is cited as the main factor

holding back investment and this is

at the highest level for a decade.

The fact that many of these

responses are the weakest since the

depths of the fi nancial crisis is very

worrying. Some of the weakness

may refl ect the international

economic climate. Brexit is the other

obvious explanation. The air of

uncertainty and the growing risk of

a no-deal Brexit appear to be hitting

industrial output, confi dence and

investment hard.

The monthly index of GDP has

been broadly fl at so far this year, so

it is quite possible that the second

quarter shows little or no growth.

The current quarter is likely to be no

better while there is so much talk of

a no-deal Brexit; 2019 looks set to be

disappointing for the UK economy.

Andrew Sentance is an independent

business economist and was a

member of the MPC from 2006 to 2011

Purchases of secondhand

goods helped boost retail

sales in the UK in June

er e

House prices rose in most

areas but fell in London

Boris Johnson’s pledges

of tax cuts would require

higher public spending

jobs boom was fading. Employment

rose by just 28,000 in the latest

quarter,below expectations.

Betterthan forecast

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