Economic update: Unemployment and borrowing rise but recession unlikely

The UK’s economy was a mixed bag in October. The labour market (which had previously been at record levels) began to show cracks, and Government borrowing began to rise. On the other hand, economic growth has stayed positive, with the UK looking increasingly likely to avoid a recession – despite a previous quarter of negative growth – and inflation remaining steady.

A knock to the economy’s confidence

The month was dominated by debates over Brexit, as the Bill implementing the Government’s new Withdrawal Agreement with the EU was introduced, scrutinised and ultimately paused.

There are potential signs of uncertainty in the labour market: the number of people in employment dropped by 56,000 in June-August 2019 relative to the previous quarter, with unemployment rising by 22,000 over the same period. Although this still leaves the labour market in a strong position (and it is too early to tell whether this is a reversal of the trend), this is in contrast to steady growth in employment and decreases in unemployment over the previous year.

Business confidence also continued to be low. The Confederation of British Industry (CBI) has found the majority of manufacturers are expecting output to decrease in the next three months.

A bar chart showing the Confederation of British Industry's future output expectations in 2019 to date. In January 2019, the percentage balance of manufacturers expecting improvement or deterioration in the next 3 months was at 14.1 %. In October 2019 it was -16.5%.

Borrowing increases (as the Budget vanishes)

Chancellor Sajid Javid had been expected to deliver his first Budget on 6 November, but these plans have now been cancelled. This will leave us without the OBR’s detailed economic and fiscal forecasts next month. However, we already know that borrowing has begun to rise as spending increases – Government borrowing in the financial year to date was £39.0 billion, up £5.8 billion compared to the same period last year.

A linegraph showing cumulative net borrowing in the financial year to date - shown in billions, excluding public sector banks.

It is increasingly likely that the UK will now avoid a technical recession (two consecutive quarters of negative growth), with GDP growth being positive in the last three months (+0.3% in June-August 2019) and services sector growth accelerating somewhat.

Some things remain the same

Despite the turmoil, some parts of the economy have been steady. Inflation remained at 1.7% in September, a little below the Bank of England’s target of 2%, and retail sales in September stayed at the same level as in August. Average earnings continued their above-inflation increases, although their levels, are still to reach their pre-crisis height.


About the author: Philip Brien is a Senior Library Clerk at the House of Commons Library, specialising in public spending.