A surprise to some but UK economic growth has been revised up during the final three months of 2016 because of faster than expected growth in the manufacturing sector. As a lack of business investment was expected to drag economic activity lower, the net effect of household consumption and trade boosted it. Business investment and trade were major concerns on how the UK economy will fare following the EU referendum vote. Some economists believed that uncertainty about trading agreements will result in companies to reduce investment and others say that the fall in the pound will help boost British Exports.
Consumer Spending:
Economic growth picked up in the final three months of the year, with net trade providing a vital boost in the last quarter but business investment dragging on the economy. Regardless of this previous trend, inflation in picking up and would probably rise about 3 per cent this year as retailers pass on higher prices from increased import costs on to consumers. After enjoying years on low and borderline negative inflation, consumers will feel the pinch. While inflationary pressure could be offset by wage increases, the Bank of England thinks employees’ bargaining power is sufficiently low that employers will not increase wages at a rate in line with inflation growth.
However, consumer borrowing continues to persist despite signs that the UK’s consumption driven expansion could be running out of steam. Economists have begun to wonder if a slowdown in retail sales in December and January would slow as inflation starts to lower spending power. But consumer lending continues to grow based on the current economic foundation of low interest rates. As a consequence, the number of residential mortgages approved by high street banks in the UK rose to its highest level in almost a year in January as lower interest rates and government subsidies support would be homeowners despite worries of the wider economy.
Costs of a falling immigration:
Net migration, the amount of people arriving in the UK and leaving over a three month period, fell 18% to 273,000 the first full quarter following the Brexit vote, the lowest level in more than two years. Business leaders, specifically in agriculture and horticulture, have come forward to say that a continued decrease in workforce would greatly hinder their operations and may even initiate a rethink of their activities in Britain. Agriculture is a relatively small part of the economy, but labour shortages risk appearing in many different sectors after Brexit.
Recession forecast:
With all that is going on in the economy, many tend to look towards officials for advice or at least an indication of a sign of an upcoming crisis. Unfortunately, The Bank of England have recently admitted that if tasked to predict the next recession or financial crises, they would be unable to do so. A member of the Bank’s Monetary Policy Committee confessed that their current economic models ‘aren’t that good’, or there is not ‘a right or wrong model’ and that the public should reduce their expectation of what they think they can get form economic information in the coming five years.
