Economic Indicators, November 2018

November’s developments

As has often been the case in recent months, the latest economic developments were a mixture of good and bad. On the plus side, earnings rose at the fastest rate since 2008 and GDP growth at its fastest rate for almost two years. On the negative side, productivity fell.

GDP growth grows at fastest rate since 2016

GDP growth in Quarter 3 2018 was 0.6%, which is the fastest growth in a calendar quarter since the end of 2016. This is also the first time, since 2016, that growth in the UK has been faster than growth across the Eurozone.

Despite this, growth throughout 2018 remains subdued. The UK economy grew by 1.5% in Quarter 3 2018 compared to the previous year. Concerns have also been raised that growth slowed towards the end of this quarter.

Earnings grew at their fastest rate since the end of 2008

Growth in pay has accelerated in recent months, and this trend continued in the three months to September. Average pay, not adjusted for inflation, rose by 3.2% compared to the previous year which represents the fastest growth since the end of 2008. As CPI inflation over the same period was 2.5%, this meant that average earnings rose by 0.7% after adjusting for inflation. This represents the largest real terms increase in average earnings since the end of 2016.

However, despite the recent growth in earnings, average pay after adjusting for inflation remains below the levels seen prior to the 2008 financial crisis.

Productivity falls again

Flash estimates have shown that UK labour productivity fell in Quarter 3 2018 by 0.5%. This means that productivity has fallen in two of the three quarters of 2018, and that productivity in Quarter 3 2018 was only up by 0.1% from levels seen a year previously.

Historically, labour productivity in the UK has grown by 2% a year, but since the 2008 financial crisis growth has stagnated. The level of labour productivity in Q3 2018 was only 1.5% above the level seen over 10 years earlier in Q4 2007.

The fall in Q3 2018 was attributed to strong growth in total hours worked, which was partly driven by a rise in employment levels.

A changing labour market

Since the EU referendum there has been a large shift in the nationality of those working in the UK. Employment figures published by the Office for National Statistics showed the steepest drop in the number of EU workers for at least the last twenty years.

The number of non-UK EU nationals working in the UK fell by 132,000 in the three months to September compared to the previous year, the largest annual fall since comparable records began in 1997. Over the same period, the number of UK nationals in employment increased by 448,000, and the number of non-EU nationals in employment increased by 34,000.

There was also a slight increase in unemployment in the three months to September, prompting some commentators to suggest that the trend of falling unemployment may be coming towards an end.

A draft Withdrawal Agreement for Brexit was announced

On the 14 November, the Prime Minister announced that a draft Withdrawal Agreement had been agreed on how the UK will leave the European Union. At the time of writing, a Political Declaration on the future UK-EU relationship appears to have been agreed as well. Parliament will soon vote on these agreements. Prior to this the Government will publish an economic assessment of the long-term impact of different UK-EU future trading scenarios.

The Bank of England will also publish its assessment of the monetary and financial effects of the draft withdrawal agreement on the 28 November.

Prior to the announcement of the Withdrawal Agreement, the Bank of England had voted to leave interest rates unchanged at 0.75% at its November policy meeting.