Economic Indicators, July 2018

Last month’s developments

Revisions to the first quarter GDP figures have shown that growth in the economy was better than previously thought, and the employment figures remain high. However, growth is still not impressive, and weaknesses in the wider economy remain.

GDP growth revised upwards, but still low

A change to the way in which construction output is estimated means that the GDP growth figures for Q1 have been revised upwards from 0.1% to 0.2%. Although observers were positive about the revision, this is still the joint-lowest level of growth since Q4 2012, and it is low compared with growth in the Eurozone (0.4%) or the US (0.5%).

Interest rates were left unchanged at the Bank of England’s Monetary Policy Committee meeting in June, but the 6-3 vote implies that a change could be on the way – some observers suggest that there may be an interest rate rise as early as August. The Bank believes that the economy may be in better health than the GDP figures would suggest; if subsequent figures show continued weakness, any rate rises may be pushed back further.

Wages grow slowly despite record levels of employment

The main figures for the labour market appear healthy, with employment up by 146,000 compared to the previous quarter, and the employment rate is at its joint highest since records began; the unemployment rate is at its lowest since the 1970s, at 4.2%. This has not resulted in wages increasing as much as expected, however: average weekly earnings were 0.3% higher in April than the previous year, after adjusting for inflation (which remained unexpectedly steady at 2.4%, despite an increase in fuel prices).

Weaknesses in the production sector

Manufacturing output was down 0.5% in the three months to April compared to the previous three months, which was the largest fall since May 2017. Most of its sub-sectors saw a decrease, and although the other industries in the production sector continue to grow, it remains well below its pre-crisis peak. Services output, however, was up 0.2% on the previous three months. Several business and consumer confidence indicators saw a decrease in June.

Stocks and sterling fall

The FTSE 100 was down 1% on the previous month and the value of sterling fell by 0.4%, the second successive month-on-month fall after eight successive month-on-month increases.

Retail sales and house prices increase despite household finances

In spite of weak wage growth, retail sales were up by 4.2% by value in the three months to May compared to the previous year. This rise outstripped inflation, and the volume of sales (the number of things bought) was also up by 2.1%.

Similarly, house prices increased by 3.9% in the year to April 2018, and by 0.7% on a seasonally adjusted basis between March and April. This implies a possible recovery in prices after a 0.6% decrease the previous month, although mortgage approvals remain well below their pre-crisis levels.

Public finances show improvements

The latest figures on both government borrowing and debt indicate that both are decreasing, with borrowing in 2017/18 £6.2 billion lower than in 2016/17 and debt 0.4 percentage points lower (as a proportion of GDP) than in May last year.