A record 32.7 million people are in work

Against a backdrop of prolonged uncertainty over Brexit, the UK economy still expanded in Q1 by 0.5% as nearly all major sectors added to national GDP growth. UK GDP grew by 2% year-on-year despite the distractions. Business investment has fallen in the past 12 months but consumer spending has been solid due to strong job and income growth. PWC have suggested that if the UK withdrawal from the EU can be resolved in an orderly way, there is likely to be a recovery in business investment leading to a further boost to UK growth in this year and next. PWC are predicting a dip in growth to 1.1% in 2019 but rising to 1.6% in 2020.

According to the Office of National Statistics (ONS) a record 32.7 million people were in work in the UK which is a rise of 457,000 in the year to the end of May. Equally satisfying is the fact that the quality of jobs are predominantly full-time positions. Unemployment fell by 115,000 in the year to March with a current unemployment rate of 3.9% which is the lowest since 1975. Wages grew by 3.4% while prices rose by 2.1% over the same period. The UK work force is therefore enjoying wages rising at a faster rate than inflation, meaning family finances are improving.

Historically, families save money that provides the pool of capital that allows banks to lend to homebuyers and businesses. In recent years, households have borrowed more than they saved, aiding the economy through spending. Household borrowing did fall through 2018 as income improved and savings increased from 3.9% in 2017 to 4.2% in 2018. So far in 2019 more money has been deposited in savings accounts as the housing market remains flat due to Brexit uncertainty. Consumer credit growth has slowed to 6.5% year on year, which is the slowest rate of credit growth since 2015.

While some economists feared that Brexit could restrict new vacancy rates, the ONS found that there were 852,000 unfilled vacancies in the country which is a new record high.

Now that the deadline for Britain to leave the EU has been extended to 31st October 2019, a little breathing room has been created for companies to re-assess their plans. The medium-term outlook for the UK will be influenced by Brexit but in the near-term despite delayed investment plans, data seems to have improved helped by over production and stock piling of goods. GDP growth in Q1 was 0.5% with a resurgence in manufacturing playing a lead role. With a pick-up in activity, the Manufacturing PMI index for the UK stood at 53.1 in April. This confidence index was the second highest of all 45 countries that participate in the Markit survey. However, by May this confidence factor had fallen under the sensitive 50 points mark to 49.4 as manufacturers found difficulty winning new orders due to stock piling.

In May, the Bank of England (BoE) raised its GDP growth forecast to 1.5% this year, up from 1.2% in February. The BoE have kept interest rates at 0.75% and is expecting only one rate rise by 2021. Many economists suggest that once Brexit uncertainty is lifted, the UK economy is likely to accelerate. This is also a view shared by Warren Buffett, the world’s most famous investor.

The short-lived improvement in UK manufacturing did look a little at odds with trends in other regions of the world. The reason for the boost was the levels of stockpiling going on just in case of a hard Brexit. Companies have been hoarding ahead of any disruption to supply or export. The excessive stock piling will inevitably lead to a slowdown in production which looks to have started. However, the solid growth rates in Q1 provides support that the UK is well placed to cope with whatever Brexit may bring.

With 32.7 million people in employment, the treasury is enjoying significant tax revenue. This has been very good news for our national borrowing deficit. In 2009 the deficit stood at 10% of GDP and now stands at 1.3% and likely to fall further. The UK has done well in reducing public debt deficit and compared to many G20 nations is better placed to support the economy if needed.

A major downside of the UK economy is the decline of the High St and particularly shopping centres. This has led to business failures such as Debenhams and a high number of profit warnings from FTSE listed retailer. Profit warnings were issued by 89 retailers in Q1 up 20% on the same quarter last year.

With 32.7 million people in employment, the treasury is enjoying significant tax revenue.

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