Image: Bill Jamieson
The UK seems to be trapped in the economic doldrums. And the forecasts are no more encouraging. Right? But also profoundly wrong.
Pundits and politicians may have beaten voters into a mood of bleak despair about our economy and our prospects. Doom-mongering has swollen into a daily cacophony. And hope, never mind optimism, is a no-no.
In such an atmosphere, what business would not by now have put expansion plans on ice and retrenched in the face of forebodings that we are heading for trauma and disruption?
But coincident with this, the most extraordinary figures have been released that have gone remarkably unexplained by forecasters. Labour market figures for the three months to end November show numbers in work across the UK rising to their highest level since records began in 1971. Far from firms cutting back on hiring, they are continuing to recruit. The UK’s employment rate is now at a record 75.8%. This puts the estimated number of people in the UK working, aged 16 years and older, at 32.53 million - a 328,000 increase for the same period in 2017.
Private sector employment is now up by 3.8 million since 2010. Andrew Wishart, UK economist at Capital Economics, said the figures were “reassuring, showing no sign of any hit to firms’ hiring ambitions due to Brexit.”
Are all the job vacancies surely not filled by now? Not a bit. There were a record 853,000 vacancies in the three months to December. Companies are desperately scrambling to find skilled labour and are apprehensive over border controls post-Brexit that may hinder the flow of badly-needed skilled migrant workers into the UK.
The employment figures are not the only stunning piece of news on our circumstances. Pay growth across the UK has reached the highest level for a decade. Annual earnings growth climbed to 3.4% in the three months to November. Workers’ real after-inflation earnings growth is also looking healthier, rising to 1.2% in the three months to November from 0.1% in June. As for inflation, it is now down to 2.3% despite the weaker pound.
What of the runaway budget deficit and concerns over the public finances that have dominated since 2007–08? While Public Sector Net Borrowing saw a year-on-year deterioration in December, this was only the second month in the first nine months of fiscal year 2018/19 that this has happened and was due to the UK’s net contribution to the European Union being £1.5 billion higher than in December 2017. The budget deficit in the first nine months of the fiscal year at £35.9 billion is down 26.7% year-on-year and the best performance for 16 years.
Miracle cure
Of the many predictions leading economic forecasters have got wrong in the past ten years, interest rates – that most fundamental of indicators – must rank at the top. Back in 2009, the resort to ‘emergency low’ rates was widely seen as a temporary measure: Few imagined they would last more than a year.
But today interest rates are still in ‘emergency’ terrain at just 0.75% – and with little expectation that they are likely to move up any time soon. A decade of interest rates below 1% would once have been regarded as a miracle cure for our ills, lifting business and household spending and borrowing.
Indeed, if you had asked anyone a few years ago what were the key ingredients that would guarantee growth and prosperity, they would have replied: low interest rates, full employment, low inflation, low public borrowing and rising real wages.
Today we have all five, though you could be forgiven for not having spotted this in the daily cascade of doom and foreboding – with the BBC to the fore.
Now there is reason to be apprehensive as to what Brexit will bring. Firms have been stockpiling in the event of supply disruption and we cannot know whether the contingency plans to avoid long delays at ports and motorways will be effective. With the lack of clarity over future trade arrangements with the EU – this after two and a half years of deliberation – business frustration is understandable.
Perhaps some terrible collapse is lurking just around the corner. But one cannot but wonder at this extraordinary paradox of positive economic backdrop data coincident with such gloom.
It might be due to the UK’s rising population and fewer people being classed as economically inactive: the number of economically inactive people fell by 100,000 to 8.6 million, a rate of 21% – the lowest on record. Has the Brexit imbroglio already discouraged migrant workers from coming to the UK? We certainly have more women in the workforce. Consumer spending, in the form of online retailing, continues to surge. And official GDP figures may be failing to capture the growth of the digital economy.
But I would say it is the biggest conundrum of our age. A doctrinal pessimism has set in with Brexit – and with the attendant risk of pushing us close to recession – if not over the edge.
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