In elections, the economy is usually a key focus on the campaign trail with opposition parties taking every opportunity to criticise the government while the latter explains how they have improved the economy after the disastrous state they found it in when they took office.
In this election, with its focus on Brexit and many lavish future spending plans, the current state of the economy has not yet featured heavily but were one asked to comment on its current state, it would be difficult since there is so much contradictory evidence at present.
Consider the following data and one sees why it is so hard to see how we are doing.
- Although GDP grew by 0.3% in the third quarter of the year, the yearly growth of 1% is the lowest since 2010. Will this increase or fall after the election?
- Unemployment is now 3.8% which, in historic terms, is low. However this is slightly up on the last month so does this, pessimistically, suggest we are on the cusp of an increasing period of unemployment, especially since unemployment is a lagged indicator – firms do not immediately reduce labour when demand for their products fall. Alternatively, one can look at the figures and note that the falling number of people in work is because part-time employment has fallen by more than the rise in full time jobs so, positively, more people are in “real” employment or have the part-time workers who have failed to find full time jobs simply stopped looking and left the labour force?
- Productivity has only increased by 2.4% since June 2007. Before then the UK had averaged 2% per year, so we are producing over 20% less than we would have been had the trend continued. Possibly this is due to the long tail we have in the UK in terms of productivity with too many firms a long way below the best in their industry. How can this be improved?
- Inflation fell to 1.5% last month because of lower gas and electricity prices but retail sales fell last month as consumers possibly lost confidence in the economic outlook for the next few months. Earnings are increasing at 3.6% so real incomes are rising at 2.1% but if productivity is static, then inflation will increase as firms’ costs rise.
- UK exports have dropped, possibly because of Brexit uncertainty and the slower world GDP growth following the US-China trade war.
- The public finances have deteriorated. Borrowing has risen by a fifth during the first half of the financial year, and in September was £9.4bn compared to £8.8bn last year and the national debt was £1.8tn at the end of the financial year ending March 2019, equivalent to 84.2% GDP. Therefore how will the political parties finance their announced increases in spending without considerable increases in tax or borrowing?
- UK consumer debt is rising, standing at £59,441 per household in August 2019. What will happen when interest rates increase as they are likely to do if government spending increases significantly or if the economy enters a downturn when Brexit occurs? Are we heading for another financial crisis?