Andrew Sentance
Senior adviser to Cambridge Econometrics and member of the Bank’s MPC from 2006-11
There are very clear signs of weakness in the manufacturing sector of the UK economy. The latest CBI industrial trends survey makes for grim reading. It shows output contracting in the three months to October, the second successive quarter of decline. In other words, the manufacturing industry is in recession. Investment intentions are the weakest since the financial crisis and confidence about export prospects is at its lowest ebb since 2001. The official index of manufacturing output tells the same story - in the past three months it was its lowest level for more than two years.
Despite these signs of industrial weakness, the economy as a whole seems to have bounced back in the third quarter. The National Institute of Economic and Social Research is estimating a 0.5% rise in GDP. The reason? Services-sector output continues to grow, supported by consumer spending and a relaxation of public spending restraint.
On the consumer front, wage growth continues to run ahead of inflation - with a positive gap of just over 2% on the latest numbers (3.8% wage growth compared to 1.7% inflation). Unemployment has edged up slightly but the jobless rate remains below 4%, which is extremely low by historical standards.
The government’s latest spending review signalled a boost to public spending to offset the drag of Brexit on the economy. We should not be surprised if tax cuts in next month’s budget add to the fiscal stimulus.
The UK economy is likely to continue to grow at a modest pace, driven by consumer spending and the services sector. But manufacturing industries will continue to struggle – not least because it is the part of the economy most exposed to the negative aspects of Brexit.
Though economic growth is continuing, the UK economy is becoming more unbalanced, not less so. That is one of the many unfortunate consequences of Brexit.
David Blanchflower
Professor of economics at Dartmouth College in the US and member of the Bank of England’s monetary policy committee (MPC) from 2006-09
The lack of clarity on whether Brexit will happen, and if so when, and in what form it might take, continues to create uncertainty in the markets. The pound reached a high of about $1.30 on the news that Boris Johnson would not be able to impose an economically disastrous outcome, before falling back in subsequent days. Markets appear to believe there is a smaller chance of a disastrous no deal than they did at the beginning of the month. Any form of Brexit is unequivocally bad for the economy.
It is disgraceful that Sajid Javid has refused to publish economic analysis of the deal parliament has been offered by the government. This is either utter incompetence or they are trying to hide bad news, or both. Analysis by the UK in a Changing Europe found that new trade barriers after Brexit would reduce national income per person by 2.5% after 10 years, compared to remain. That translates to £800 for every citizen, more than twice the estimated hit under Theresa May’s plan. Brexit of whatever form is going to lower living standards compared to remaining in the EU.
Last month I argued the economic data indicated Britain was in recession and there is more evidence this month to support that view. Worryingly, employment fell by 84,000 on the month and unemployment rose by 20,000, resulting in the unemployment rate ticking up to 3.9%. Average pay dropped sharply on the month also, while real wages remain 4.4% lower than in February 2008, just before the start of the great recession.
A survey from the accountants KPMG and the Recruitment & Employment Federation shows that heightened political and economic uncertainty over Brexit continued to weigh on hiring activity at the end of the third quarter. Permanent staff appointments fell for the seventh month in a row. It is clear the labour market is slowing fast.
Data from firms also suggest recession. Business surveys show that both new and outstanding activity declined in September, while companies were the least optimistic about future growth since July, immediately after the EU referendum.
Investment intentions have also worsened, with company plans to spend on buildings, machinery and training the most negative since the financial crisis. Falling animal spirits will push the UK economy further into recession.
The bad economic news continues to build but nobody is doing anything about it. Where is the Bank of England’s monetary policy committee? As in 2008, they appear to have missed the recession again. It’s singularly inappropriate to argue that they should just wait to see how the data develops. The only questions now are how deep and long-lasting this recession will be.
