The British economy is showing signs of faltering as the Bank of England considers raising interest rates, although falling inflation has handed households better news, according to a Guardian analysis of economic developments over the past month.
As the Bank debates raising the cost of borrowing above 0.5% for the first time since the depths of the last recession, the Guardian’s latest Brexit dashboard paints a mixed picture.
Freezing weather and heavy snow appear to have blown the already-fragile economy off course, as the “beast from the east” forced shoppers to stay home and diggers and cranes to lay idle across the country. Mark Carney, the Bank’s governor, pointed to weak retail sales and the squeeze on the high street among “mixed economic data” over the past month that could delay a rate hike.
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 four cases the outcome was better than expected.
The latest dashboard shows rising real earnings for the first time in a year, helping to ease the pressure on squeezed households, as the inflationary effects from the sudden drop in the value of the pound after the Brexit vote begin to fade. There was also an unexpected further fall in the unemployment rate to the lowest level since 1975.
The Office for National Statistics declared the return of real wage growth, pointing to average pay packets rising above inflation by 0.2% in the three months to February. Meanwhile, there was good news for consumers facing spending constraints as the consumer price index (CPI) unexpectedly dropped to the lowest level in a year in March, falling to 2.5% from 2.7% in February.
Scrapping the spring budget this year may have flattered the CPI reading, given the usual raid on smokers and drinkers by the chancellor which usually pushes up the cost of living around this time of year. However, economists said wages rising above inflation could help to boost high street spending later this year.
Writing in the Guardian, Andrew Sentance, a former member of the Bank of England’s rate-setting monetary policy committee (MPC), said this stronger economic data should encourage the Bank to raise interest rates.
“A rise to above 0.5% is long overdue, and postponing it again will not help the UK economy,” he said.
But there are also worrying signals from the economy as Theresa May prepares for a Commons showdown over plans to leave the customs union, which business leaders warn could wreak further damage.
Figures suggesting a slight drop in output for the wider European economy appear to have been matched in the UK, where heavy snowfall in late February and early March made matters worse. The IHS Markit/CIPS barometers of business activity in the construction and services sectors fell sharply last month, with the latter recording the worst month for activity since the Brexit vote.
The latest estimates from economists at the EY Item Club point to output falling by as much as half in the first three months of 2018, while the forecasters reckon the UK economy “continues to display a lack of momentum and shows little sign of breaking the pattern of uninspiring growth seen over the course of last year”. Fresh from its spring meetings last week, the International Monetary Fund ranks the UK at the bottom of the European growth league alongside Italy.
The fund also said tighter controls on immigration could damage the world’s most advanced economies, which it said risked being overwhelmed by their ageing populations and should open their borders in response. Net immigration has been falling since the EU referendum and there are fears among business leaders over labour shortages ahead.
Meanwhile, the news from the property market over the past month showed stuttering growth in house prices across the UK, shrouded in gloom by Brexit uncertainty, with official figures recording the first annual drop in London house prices since 2009.
