World Economy

UK Growth Deteriorating

UK Growth DeterioratingUK Growth Deteriorating

A significant slow-down is taking place in the UK economy; that much is plain not just from the growing weight of anecdotal evidence—including  warnings from a whole slew of retailers—but from the now unmistakable softness in the official data. No longer can it be put down to one or two rogue surveys.

In the last quarter, the UK economy actually grew less strongly than the eurozone, the first time this has happened in years, while the latest Purchasing Managers Index points to a sharp fall off in growth across virtually all sectors, including previously robust services, Jeremy Warner wrote for Telegraph online.

As Christopher Williams reports elsewhere on this site, there is also evidence of a marked deterioration in the advertising market, a key forward indicator of trouble to come.

To be clear, the PMIs do not yet point to an economy about to go over the cliff, only a deceleration in growth. Even so, they are perilously close to the level that would indicate an outright contraction. What’s going on here?

It’s impossible to quantify, but at least some part of the deterioration can be attributed to uncertainty around the outcome of the EU referendum. A recent survey of chief financial officers by Deloitte found business uncertainty to be at its highest level since the eurozone crisis, with the bulk of respondents pointing to Brexit as the chief worry.

At their last meeting, members of the Bank of England’s Monetary Policy Committee cited growing evidence that capital expenditure and commercial property transactions are being postponed pending the outcome of the vote.

 Global Recovery Slowing

Losing This hiatus in activity is likely to get worse as we approach June23—the day of the vote—particularly if the polls begin to signal a leave majority. “In the event of a vote to remain, we can therefore expect some kind of post referendum bounce,” Warner said.

Yet Brexit is clearly not the only, or even the main, factor at work here. There’s something deeper going on; the global recovery, if it could ever be called that, is running out of steam almost everywhere.

Unprecedented levels of debt make it even harder to be optimistic about emerging markets, with some kind of a Chinese financial crisis now all but hard-baked into the future.

Britain’s recovery is now thirteen successive quarters of growth long. Britain’s recovery was largely based on consumption, fed by record levels of employment, lower oil prices and so on.

With slowing employment growth, fast stabilizing energy prices and still hardly any wage growth to speak of, the consumption splurge may be fading.

“We are not yet talking about a collapse; that comes after a vote for Brexit, when international investors will focus much more acutely on long standing vulnerabilities in the UK economy, including apparent inability to get on top of still giant budget and current account deficits,” Warner said.