Swindon’s businesses have received an exclusive insight into the Bank of England’s quarterly inflation report at the MHA Monahans Bank of England Breakfast.
Despite concern felt by many about the world’s economic and political stability, there is a strong case for cautious optimism.
To cite one example, the recent increase in interest rates is the second one this year but, seen in context, it is still only the second rise in ten years. There is no expectation of any sudden sharp interest rises, and the Bank of England is confident that global demographic factors will keep interest rates low for the long term and has no expectation of a return to the kinds of rates that were experienced in the 1970s and 1980s
Overall, the world economy is continuing to improve. In the UK, the squeeze on pay and household income is easing, with wage growth increasing at a faster rate than inflation and the scrapping of the public sector pay freeze having a positive effect on the private sector.
Global GDP growth remains robust but is expected to slow a little. Commodity prices, and metals in particular, are starting to fall, possibly because certain global protectionist measures are having a downturn on commodity demand. Oil prices, however, are higher as supply has fallen, which means domestic fuel costs will rise.
European and US business confidence also remains high, though confidence is lower in the UK as Brexit concerns continue to have a dampening effect.
Domestic GDP growth remains at about 1.5 per cent. Manufacturing output has weakened since the start of the year and export growth has also slowed, though it still remains fairly robust. The growth in bank lending has also slowed, with many firms seeming to finance investment through cashflow rather than through additional borrowing.
The housing market is fairly flat, particularly in London, although locally prices are still rising, albeit at a sluggish pace. First time buyers and new builds are the source of most market activity.
The labour market has continued to tighten, with record levels of low unemployment nationally, and we in the South West have the lowest levels of unemployment of anywhere in the UK. Employers report significant difficulties in recruitment, and the problem has been exacerbated with net migration from the EU falling. UK productivity must improve if the economy is to grow, particularly if the labour market continues to tighten, as is likely.
Households should continue to feel better as wage rises outstrip inflation which should positively affect domestic demand and the housing market.
Martin Longmore, Partner at MHA Monahans said: “It is encouraging to hear that despite the current uncertainty surrounding Brexit, the UK and world economies are actually in fairly healthy shape, and that the Bank of England is predicting slow but steady growth with few, if any, unpleasant shocks.
“South West businesses will be very conscious of the need to increase productivity to compete on the world stage, and many are going to continue to be challenged by a shrinking pool of available labour. But we know the South West is attracting more young talent out of London because of the capital’s very high costs of living, and the quality of life here is widely acknowledged to be very high. Companies in industries such as technology, life sciences and renewables are particularly well placed to attract that talent in the future.”
The next MHA Monahans Bank of England Breakfast will take place on 9 November 2018.