David Blanchflower

Professor of economics at Dartmouth College, New Hampshire, US, and member of the MPC from June 2006 to May 2009

The Office for National Statistics has now confirmed that GDP growth in the UK in the first quarter of 2018 was 0.1%. We have comparable data for 19 other EU countries, all of which – other than Romania – grew a lot faster. Austria grew at 0.7%, Belgium 0.4%, Denmark 0.3%, Finland 1.1%, France 0.3%, Germany 0.3%, Italy 0.3%, the Netherlands 0.5% and Spain 0.7%, many of which also had bad weather.

A major concern is that business investment decreased by 0.2% between the final three months of 2017 and the first quarter. Firms are not going to invest when they have no idea what form Brexit will take and not least what will happen in relation to the Irish border.

We should expect this decline to continue, which will be bad for British productivity. Recall that the French still produce in four days what the UK produces in five and this is not going to change any time soon. The UK continues to be the sick man of Europe.

Mark Carney said that the UK economy was as much as 2% smaller than forecasts due to Brexit and estimates British households are more than £900 worse off. The uncertainties over what form Brexit will take also suggest that figure will continue to grow.

Added to that, real wages in the UK are still 6.5% below where they were in February 2008, just before the great recession started. They are the same as they were two years ago despite a small pick-up recently. Continuing and reckless austerity means living standards have fallen further – especially at the low end, because of cuts in benefits and public services and especially for those at the low end. People are hurting.

There was a solid improvement in retail sales in April after horrid weather impacted the March number. But pressures continue in the high street and it certainly isn’t good news that Marks & Spencer announced plans to close 100 stores. It is likely other high street closures will follow. The all-sector PMI did pick up – but still came in weaker than markets expected. Inflation surprised on the downside and house prices continue to slow. So a little bit of improvement, but not much.

There is nothing in the data to suggest a rate rise was appropriate even before the monetary policy committee’s May meeting, and since then the data has worsened further. Fortunately they saw sense and kept rates at 0.5%. The consequence of that has been that the pound has slumped by almost 6c against the dollar. If anything the data suggests to me a rate cut is in order and soon. Brexit is a disaster. As Laurel and Hardy famously said: “Well, here’s another nice mess you’ve gotten me into.”

Andrew Sentance

Senior economic adviser at the PwC consultancy and member of the Bank of England’s monetary policy committee from October 2006 to May 2011

The pattern of rather mixed data for the UK economy has continued this month, though it is also clear that bad weather had a significant dampening effect on a number of economic indicators for the first quarter of the year.

Even allowing for the weather, however, the UK continues to underperform relative to its major trading partners. UK GDP is just 1.2% up on a year ago, compared with a 2.5% increase in the eurozone and a rise of nearly 3% in the US. The sluggish growth of consumer spending remains the main source of weakness on the demand side of the economy.

However, the labour market has continued to paint a reasonably positive picture, with employment continuing to rise and wage growth continuing to run ahead of inflation. Both these factors should be positive for consumer spending in the second half of this year.

UK inflation fell back to 2.4% in April – but the good news on this front is likely to be interrupted over the next few months by rising fuel prices. The price of Brent crude may have fallen back recently from its recent peak to about $75 a barrel, but a year ago prices were in the range of $45-$50.

With the pound also softening against the dollar – following the monetary policy committee’s decision not to increase interest rates in May – a renewed surge of import prices is likely to keep inflation at about 2.5% over the summer months.

The UK economy also continues to suffer from very weak productivity growth. In both the US and the eurozone, GDP is rising 1%-1.5% faster than employment. Yet in the UK, GDP and employment are both increasing at the same rate – which suggests that productivity is flat and not increasing at all.

If Brexit causes high value-added jobs in manufacturing and financial services to move out of the UK, productivity growth could weaken further.

The UK economy now seems to be in a prolonged phase of disappointing growth performance, and it may well be that the current policy of keeping interest rates at exceptionally low levels is aggravating this problem, not making it better.