UK government figures out today show a 1.5% shrinking in the size of the economy in the first three months of the year – huge by pre-covid standards, but better than was widely expected, with rapid growth in March as schools reopened and some economic life resumed. That last month is likely to be a foretaste for the summer, as the lockdown and social distancing measures are eased through to June.

We know from last year that easing restrictions produces almost an automatic recovery in the economy, as people return to work, and start spending more money. Unlike last year, where a foolhardy government rush to normality helped produce a further surge in cases and subsequent, damaging lockdowns, the vaccine rollout this year has been a dramatic success. Hospitalisations and deaths from covid have fallen sharply, and the sense of uncertainty that hung in the air has reduced. Put all this together, and there is every reason to expect all the main economic indicators – from GDP to employment – to look rosy, right the way through to autumn.

But even this short-term recovery is likely to be highly uneven. The government and the Bank of England have put a great deal of faith in those who have saved money over the last 12 months. Supported by furlough or, more likely, working from home, many have been able to carry on earning during the pandemic, but have had fewer opportunities to spend on anything from restaurant meals to pints in the pub to holidays. As a result, some £160bn of exceptional savings – over and above what people normally save in a year – has built up, nearly all of it simply sitting in bank accounts, waiting to be used. The theory, pushed by the Bank of England, is that with confidence about the future returning, a great deal of this will be taken from those bank accounts and spent in a great rush of pent-up consumer demand. Deutsche Bank are even more optimistic, thinking 10% of the savings pot will be rapidly drawn over this year.

You can argue about the likely scale of this – and the Bank of England’s household survey in November said 70% of households intended to hold to their savings – but the rush to spend itself is likely to cause difficulties. With so much economic activity now shifting permanently online, a surge in consumer spending will not lead to a rapid revival in our high streets in the way it once did. This effect is likely to be reinforced by the shift to working from home, with the BBC reporting that almost all of Britain’s 50 biggest companies anticipate most staff returning to the office a few days a week. But with fewer office workers around, town and city centre shopping will take a hit, as Bloomberg’s new “Pret Index” demonstrates. This shows Pret sandwich sales as a share of January 2020’s figures and, as the table below shows, whilst more rural or suburban locations are almost back to pre-pandemic levels, city centre and transport hubs have been walloped.

This is an acceleration of a major, existing trend, rather than the pandemic introducing something wholly new. A market-led recovery, via consumer spending alone, is likely to leave many (already struggling) high streets. Government support is needed, not least in making sure the 250,000 retail workers that management consultants McKinsey expect to “transition” (nice euphemism) from the sector can find work. Beyond that, however, we need to reconsider what it is our high streets are for. At present we rely on the overspill from commercial activities – you and I going out to shop – to help support the public space they provide. If those commercial activities suffer, the public space suffers. It is time to consider more active government interventions: turning less busy streets into public parks, for example, or providing shared office space and community facilities in disused buildings.

Looking further ahead, we can perhaps already see some of the changes that covid-19 has wrought. With various restrictions on contact likely to remain in place for some time as the virus continues to circulate (and mutate) globally, service business in particular are likely to face significant new costs and uncertainties into the future. Manufacturing, however, is far easier to make covid secure: and, partly as a result, the recovery in manufacturing output and employment has been far more rapid here and (for example) in the US, with the UK Purchasing Managers Index of manufactured goods orders hitting a 27 year high in April. Politically, this is no bad thing for the government, which has set great store in its promises of new manufacturing jobs, particularly in the North and Midlands and particularly in low carbon technologies. But for an economy that remains so heavily skewed towards services, it points to a longer term drag on productivity and growth, once the initial sugar rush of ending lockdown has faded.

The post A shrinking economy in the first quarter, but the summer sugar rush is coming appeared first on The Progressive Economy Forum.

However, what the ONS measures now as unemployment now is not what it measured 44 or even 25 years ago. Forty years ago the distinction between “employed” and “unemployed” was clear and binary. In 1980, 51% of UK employees were union members, which for most meant a decent-paying, regular job governed by a collective bargaining contract. Most non-union unemployment was also governed by contracts. Now, in 2019, the union membership rate has fallen to 22%, and the portion of the work force protected by collective bargaining has fallen more.

At risk of oversimplification, we can generalise that in 1980 the employed/unemployed dichotomy reflected a real dichotomy in the labour market. Now, “employment” is a much more ambiguous and fluid concept, as the ONS statistics show (see Table 3 in latest ONS labour market statistics report).

A recent editorial, also from the FT, summarises well the contemporary UK labour market:

…2.8m people in poverty live in families where all adults work full time. That is a challenge to the intellectual basis of welfare reforms for the past 30 years, including on the centre left. Bill Clinton’s embrace of workfare was meant to tackle “dependency” and promote personal responsibility; Tony Blair’s New Deal aimed to get people into work and keep them there; and Gerhard Schroeder’s Hartz reforms have led to the rise of precarious and low paid “minijobs” in Germany.

The growth of precarious and unstable employment explains why consistently falling unemployment has not led to consistently rising wages. The chart below shows the two variables, average weekly wages at constant prices (left axis) and the overall unemployment rate (right axis). The chart shows that, between 2013 and 2019, wages have risen while unemployment has fallen. The probability that this wage-unemployment link is actually random over those seven years is less than one in a thousand. But the relationship is very weak – real wages and their annual growth rate are still below their pre-crash levels despite ‘record low’ unemployment.

This is what we would expect from the transformation of the UK labour market over the last few decades. In the 1960s and 1970s, a fall in unemployment necessarily implied a “tightening” of the labour market: fewer people looking for work and more companies seeking workers. This tightening meant that competition among private employers to fill vacancies increased, putting upward pressure on wages.

Now, a change in the unemployment rate does not necessarily imply a tightening of the labour market. Instead of a straightforward move from unemployed to employed, a tightening of the labour market might now involve a shift from temporary to permanent employment, from part-time to full-time status, or from self-employment to employment proper. All of these shifts – and their reverse – could occur with no change in measured unemployment. This conclusion is obvious given the ONS definition of “employed”:

The number of people in employment in the UK is measured by the Labour Force Survey (LFS) and consists of people aged 16 years and over who did one hour or more of paid work per week and those who had a job that they were temporarily away from.

The definition creates the perverse possibility that the overall unemployment rate could fall while the actual amount worked by people also falls; i.e. a lower unemployment rate with lower employment. This apparently nonsensical outcome actually occurred in recent months. The measured unemployment rate for January-March 2019 was 3.8% compared to 3.9% for December-February 2019, even though the “total in employment” fell by 24,000 and the number of employees fell by a striking 118,000, only partly compensated by self-employment rising 98,000 (see ONS Table 3, columns B and C).

How can the unemployment rate fall when the number of people employed in all categories declines? The obvious answer, not covered above, is a fall in those defined as “economically active”, specifically in the category of people without work but seeking work and unable to obtain it. Back before the ideological hegemony of neoliberalism, the “economically inactive” were known as “discouraged workers”: people who gave up seeking work because there was none to find (see explanatory video and the US Bureau of Labor Statistics’ technical explanation).

In summary, the Financial Times headline, “UK unemployment rate drops to lowest level since 1974” was correct but incomplete. It would have accurately stated, “UK unemployment rate falls with fewer in work and fewer seeking work”.

There is perhaps no better example of the economic distortions of an austerity-ravaged, neoliberal economy than a lower unemployment rate when fewer have work. A look at the numbers below the headlines is never a bad idea in this brave new world.

Photo credit: Lydia / Flickr

The post How to interpret unemployment statistics appeared first on The Progressive Economy Forum.

1. Spending on education in the UK, which includes private school education and university fees, fell by more than spending in any other category other than ‘miscellaneous’. Fewer households can afford private education and there has probably been a slight reduction in the uptake of the offers of places at UK universities. State school education spending has fallen, per child.

2. Business investment in the UK fell sharply in the fourth quarter of 2019 to become as low as it had last been relative to GDP during the great financial crash of 2008. There were especially large falls in transport investment, down from £7.0bn a year around June 2016 to reach below £4.0bn in 2019.

3. By the fourth quarter of 2018, and for the first time in any quarter since at least 2016, productive output in the UK economy fell in all main production areas. This contrasts with overall slow growth before 2016. Recovery from the Great Recession of 2008 had been underway; but the 2010 coalition choice to pursue austerity meant that the recovery was the slowest and shallowest ever recorded. Clearly, the UK is no longer even in mild recovery.

4. The ONS also reported “the fourth consecutive quarter-on-quarter fall in business investment… the first time this has happened since the economic downturn of 2008 to 2009”.

5. On the UK balance of payments, the situation is now awful: “The UK current account deficit widened by £0.7 billion to £23.7 billion in Quarter 4 (Oct to Dec) 2018, or 4.4% of gross domestic product (GDP), the largest deficit recorded since Quarter 3 (July to Sept) 2016 in both value and percentage of GDP terms.” This particular ONS report went on to highlight the fact that: “UK investors have disinvested in overseas equity securities in the portfolio account throughout 2018, resulting in an overall disinvestment of £174.2 billion in 2018 – the largest on record.” Overseas ‘investment’ was at a maximum during the height of the British Empire.

6. On the economy as a whole: “Real UK gross domestic product (GDP) increased by an unrevised 0.2% in Quarter 4 (Oct to Dec) 2018, while the 1.4% increase in 2018 is the weakest annual growth rate since the financial crisis.” This very small growth was only made possible by the UK borrowing more from the rest of the world. The employment rate rose again to a record high of 76.1% with the “unemployment rate falling to 3.9% – its lowest level since January 1975”. The economic woes of the UK are not caused by too few people working. Rather, the work being done is unproductive, the wages being paid are too low, and investment in the UK is drying up – so we depend yet more from the kindness of strangers and borrow.

7. The statistics released on March 29^th 2019 revealed “an unprecedented ninth consecutive quarter of households being net borrowers, although their net borrowing decreased to 0.8% of GDP from 1.4% in the previous quarter”. The ability of UK households to borrow yet more to make ends meet is drying up. Furthermore, in this release it was revealed that: “Financial corporations experienced an unprecedented sustained fall in net acquisitions of shares issued by the rest of the world in all four quarters of 2018, resulting in the largest annual fall since records began in 1987.” Since the third quarter of 2016 – since the Brexit referendum result – every sector of the economy has been in deficit.

Households in the UK managed to maintain their spending levels during 2017 and throughout 2018 through resorting to unsecured loans in both of these years. The UK is now entering uncharted economic territory.

8. The ONS announced on 29 March 2019 that they will be making “confidential assessments of government and devolved administration policy proposals (as explained in our classification process); we do not announce or discuss such policy proposal assessments as a matter of course in order to afford policy-makers the space to develop policy”. If you do not know what that means – well, you are not supposed to know, and you will not be told what they are doing if you are interested. In that same document the ONS confirmed that they had completed their work on estimating the income the UK government now receives from making visa charges to people travelling to the UK from overseas. These charges have increased substantially in recent years.

9. The income, capital and financial account and balance sheet data for monetary corporations, other intermediaries, auxiliaries, insurance corporations and pension funds were released on March 29^th. The seasonally adjusted data show the following levels of gross operating surplus for such UK businesses in the last five quarters (a fall from over £16bn to under £14bn in 15 months). 

Gross operating surpluses (selected UK financial businesses)

Source: UK Economic Accounts: sector – financial corporations, ONS. 29/3/2019

10. On 28 March the ONS reported on housing price falls and explained that “The total value of residential property transactions (unadjusted for inflation) decreased most in London in the year ending September 2018.” The UK housing market is in a slump. Transaction levels have collapsed. The price falls are still led by London, where the vast majority of UK housing equity resides. As of 2017, UK banks rely on the value of the homes they have lent on to meet their Basel III stability requirements for minimal capital adequacy.

11. On 27 March the ONS reported that: “Since 2012 to 2014, there have been statistically significant increases in the inequality in Life Expectancy in England for males and females at birth and at age 65 years; the inequality in female Life Expectancy at birth had the largest growth, rising by 0.5 years. In England, the growth in the female inequality came from a statistically significant reduction in Life Expectancy at birth of almost 100 days among females living in the most deprived areas between 2012 to 2014 and 2015 to 2017, together with an increase of 84 days in the least deprived areas.”

12. A day earlier, on 26 March, the ONS released a report showing that a quarter of children aged 11 to 16 (in England, in 2017) with parents “struggling to get on” were living with a mental disorder, as were just under a fifth (19%) of all those children aged 5 to 10. The ONS reported the recent findings of the Children’s Society to help explain this: “Reductions in family income, including benefit cuts, are likely to have wide-ranging negative effects on children’s mental health.” The situation will have worsened during 2018 as reductions to these family incomes continued. We have no idea how the children of the UK will, as a whole, be effected by the events reported above. There is little reason to be optimistic. But, as I write (April 1^st), there is still time to avert a hard Brexit.

This piece was originally published in Public Sector Focus here. Photo credit: Flickr / Luc Mercelis.

The post Twelve facts you may have missed as the UK missed its first Brexit deadline appeared first on The Progressive Economy Forum.

Today, I just want to say a brief word about the uncritical interpretation of these statistics in the media, using the BBC’s article on the new figures as an example. The headline is “wages accelerate to fastest pace since 2008”, and the introduction reads:

“Wages are continuing to rise at their highest level for nearly a decade, the latest official Office for National Statistics figures show.

Compared with a year earlier, wages excluding bonuses, were up by 3.3% for the three months to October, the biggest rise since November 2008. Average weekly wages are £495 – the highest since 2011, when adjusted for inflation.

The number of people in work rose by 79,000 to 32.48 million, a record high. That is the highest figure since records began in 1971.

Unemployment increased by 20,000 to 1.38 million, although the margin of error is 70,000 and the total is still lower than a year ago. The number of unemployed men increased by 27,000, while the number of unemployed women fell by 8,000.

The reason both employment and unemployment have increased is a result of the UK’s rising population and more people joining the labour force, such as students and older people.”

First, it is nominal wages that are growing at their fastest rate for nearly a decade. But real wages – wages after inflation – are what really matter, as they tell us far more about workers’ living standards.[1] Here, the picture is much more dismal. Real wages grew by just over 1% in the past year – slower than in most of 2015/16, and well below 1945-2007 average of 2.5%.[2]

Indeed, this meek growth has not been enough to compensate for the falls in real wages during and following the recession, conferring onto the UK the dubious honour of being one of the only OECD countries (along with Greece) to have experienced negative wage growth since the Global Financial Crisis (GFC). So yes, weekly wages are at their “highest” since 2011, but this is not cause for celebration. If wage growth had kept up with the WW2-GFC trend, wages would be approximately ~28% higher than their current levels.

Instead of explaining this broader context in their introduction to the piece, the BBC decided to note that the number of people in work is at its highest since records began in 1971: unsurprising, given that the population of the UK has steadily risen by 11m people over this time period. Choosing to devote space to such a facile observation is questionable at the very least.

Though the BBC did add critical commentary from Margaret Greenwood, Frances O’Grady and others over the course of the day (though without timestamping these contributions/noting that the article had been edited ex post, I might add), the fact that the earliest, and likely the most-read version of the BBC article contained no such counterpoint is serious cause for concern.

The overarching issue is that wage and productivity performance has been so dismal over the past decade that it allows the Government to pass off news that would be considered miserable by any reasonable standards as fantastic. Employment Minister Alok Sharma, for example, cited “wages outpacing inflation for the ninth month in a row” as a sign of “the enduring strength of our jobs market”.

The fact that avoiding real wage falls for a grand total of nine months – outside of recession time, no less – is touted as a mark of enduring strength highlights that something is seriously wrong with the UK labour market. This is why continuing to draw attention to the wider context is so important.

[1] One commentator pointed out that higher nominal wage growth does benefit indebted households; this is true, but it is stagnant real wage growth that is driving the increase in consumer debt in the first place.

[2] Using the ‘real consumption earnings’ time series from the Bank of England’s A Millennium of Macroeconomic Data.

Photo credit from previous page: Flickr / Ali Craigmile

The post BBC analysis of labour market statistics misses the point appeared first on The Progressive Economy Forum.

A reader of this article might conclude that 1) more people were working more, and 2) more people were paid more.  A few people might have gone to the source, the Office of National Statistics website and downloaded the tables with the original information.*  Those who did so and inspected tables 2, 3,7 and 16 discovered that both superficially legitimate inferences are wrong.  

The first discovery (Table 2) is that while the total number of people 16 and older that were employed did increase by 42,000 from January-March to April-June,** all but 7000 of that increase was by men and women 65 and older.  Employment fell by 35,000 for the 18-24 age group, by 9,000 for the 25-34 age group, and by 20,000 for 35-49 year olds.

Plowing deeper into the tables brings more bad news.  Though total employment rose by the fore-mentioned 42,000, total working hours fell by 638,000 hours (Table 7).  Full-time employees experienced this fall in hours worked, their average working week 0.2% lower than in the previous three months (part-time workers increased their hours by 1.0%).  Plunging on to Table 16 we find that average weekly inflation-adjusted earnings in June 2018 were 0.1% lower than in June 2017.

How might we explain this rather strange combination of numbers – total employment up, but only for those 50 and older, total hours worked down, and real earnings lower?  This combination tells a clear story – older people, especially the elderly, found it necessary to supplement their meagre pensions by whatever piece work they could find; while the vast majority worked less.  Both results have a clear cause, the fiscal austerity of the Conservative government that has constrained the growth of private demand and reduced public employment (which fell continuously since the beginning of the year, Table 4[1]).  

The FT article tells us that the fall in the headline unemployment rate is what prompted the Bank of England to raise its lending rate, interpreting that decrease as potential sign of “overheating”.  If this is true, the members of the Monetary Policy Committee should have looked beyond the headline at the small print in Tables 2, 3, 7 and 16.

*References to tables from Dataset A01: Summary of labour market statistics.
**To seasonally adjust the ONS labour statistics use three month averages.

Photo credit: Flickr / Garry Knight

The post Falls in under-50s employment, hours worked and real wages: what does this mean? appeared first on The Progressive Economy Forum.

This morning (14 August 2018) the ONS released their latest data on UK labour markets. Unemployment is down, as expected, from 4.2% in Jan-Mar 2018 to 4% in Apr-Jun 2018.

Initially this might seem like good news, but low unemployment hasn’t translated into wage growth. Average weekly earnings in real terms still haven’t recovered to their pre-crisis levels, making this the worst period of wage stagnation in the past 200 years. Before the crisis in 2008, workers earned an average weekly wage of over £500. Now, they earn on average £489 per week.

The more recent deceleration in wage growth is particularly worrying. Nominal wage growth has slowed (see Figure 8 below), and so average weekly earnings have fallen slightly since March in real terms. In the past, low unemployment has led to growth in wages. The idea is that when there is little ‘slack’ in the labour market, firms have to compete more for workers and wages rise as a result.  

Bank of England’s misjudgement

The Bank of England’s Monetary Policy Committee (MPC) used the supposed ‘tightness’ of labour markets to justify their recent hike in interest rates; at any moment now, wage inflation is supposed to rise thanks to the UK’s low levels of unemployment. A rise in interest rates is necessary, the MPC argues, to constrain any resulting inflation.

Unfortunately for the Bank, they’ve made many a similar prediction in the past and have been proven wrong. Today’s figures contradict the Bank’s predictions in this year’s February Inflation Report that wage growth would pick up to 3%. Indeed, former MPC member David Blanchflower notes that the Bank have wrongly forecast that wage growth was going to return to its pre-recession levels the last 18 forecasts in a row.  (This calls into question the Bank’s decision to raise interest rates this month: see PEF Council member Ann Pettifor’s critique here.)

The issue is that “the unemployment rate no longer predicts… wage pressure. It seems to severely overestimate it.” In his research with David Bell, Blanchflower proposes underemployment as an alternative measure of slack in labour markets. Someone is underemployed if they are currently in employment but would like to work more hours at their set wage.

On this measure, the UK is still clearly quite far away from ‘full employment’. Between 2002 and 2008, the average number of extra hours demanded by workers was 25.6 million hours per week. In 2017, by contrast, the average was 37.7m. (N.B. the ONS measure underemployment in the number of people who want more hours, and not in the total number of extra hours demanded. This gives a different picture, and arguably underestimates the extent of underemployment as it fails to take into account changes in intensity.)

But one might also note that the number of people who want to work fewer hours at their current wage rate has also increased. We can add the two figures in the graph above together to find a total measure of workers’ dissatisfaction with their hours. This ‘dissatisfaction index’ increased from 57m hours per week in 2002Q1 – 2008Q1 to 74m per week between 2014Q1 and 2017Q3.

Monopsony – when employers dictate wages

We might expect this increase in dissatisfaction to lead to more people looking for other jobs, which in turn would encourage competition for workers and a much needed rise in wages. But this isn’t happening, and Blanchflower and Bell argue that this because employers are monopsonistic.

Monopsony – a term coined by the Keynesian economist Joan Robinson – describes a situation in which there is a single buyer of a good, and as a result this buyer can exercise complete control over the sellers of the good; it is the counterpart to the concept of monopoly. If employers – the buyers of labour – are monopsonistic, this means they can exercise a monopsony-like power over the sellers of labour: workers.

Recent research from the US suggests an increase in the monopsony power of employers over recent years, as summarised in a fantastic Vox article here. The reasons behind this imbalance of power are plenty. Deunionisation is one factor, as is the fact that employees feel a greater sense of economic insecurity, making them less likely to quit their job for a ‘better match’. The harsh reforms to the UK’s welfare system have disempowered workers in a similar way. Ultimately, increasing worker power is needed to boost wage growth.

Productivity and investment

We also need to look at labour productivity. The Bank of England is pessimistic about the UK’s productivity growth, and thus ultimately about the potential of the UK economy. In Governor Mark Carney’s language, the UK has to adjust to a new ‘speed limit’ and accept slower wage and output growth.

However, we needn’t accept this as a fundamental and insurmountable limit on our economic prospects. Rather, we ought to examine whether our current malaise is a function of current policy – policy that can be changed. PEF Council member Simon Wren-Lewis argues that there currently exists an ‘innovation gap’ in the UK economy, and that higher levels of investment could help us break Carney’s ‘speed limit’. The only roadblock is the present government’s obsession with the ‘deficit’ and unwillingness to use the power of the state to raise finance and expand investment, which will raise wages and productivity.

Photo credit from previous page: Flickr / Rob Albright.

The post Underemployment, underinvestment and power: why wage growth has slowed appeared first on The Progressive Economy Forum.

John Weeks: “austerity in real time”.

Every three months the Office for National Statistics (ONS) reports data on the main sectors of our economy, providing numbers on economic activity as a whole, the major sectors (manufacturing, construction and services), and categories of expenditure (by government, business, exports and imports).

The media and politicians invariably transform this rather bland non-event into a ritual of economic assessment, with the prime focus on “growth”, the aggregate measure of national economic activity as indicated by gross national product.  The commentary on this near-magic number, “percentage change in GDP” should carry a health warning, because special interests rush forward to provide their self-serving interpretation without explaining to the public what is being measured and why that measure enlightens our understanding.

Earlier this morning the ONS initiated the seasonal ritual with the announcement that “UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.4% between Quarter 1 (Jan to Mar) 2018 and Quarter 2 (Apr to June) 2018.”  Many of those who read this statement, or found it in second hand reports, might conclude that our national production had increased, albeit by a very modest annual rate of 1.3% compared to a year before.

This conclusion would be false.  Delving further down in the ONS announcement, the reader discovers that activity in the “production” category – manufacturing, electricity and water, mining and agriculture – declined by 0.8% quarter-to-quarter, its sharpest quarterly fall since the end of 2012.

The production of goods declined, and businesses and households used less power and water – how could GDP increase?  Services and construction rose, counteracting the decline in production sectors (numerically, if not substantively).  To compensate for less domestic production our balance on international trade dropped deeper into the red (trade balance declined from £6.8 billion to 9 billion).

To put it simply, the increase in GDP from 0.2% in the first quarter to 0.4% in the second brought us an economy with less production and more imports.  This unpalatable combination results from the feckless continuation of Tory austerity policies that depress domestic demand (household consumption rose by a meagre 0.3%).

A few may hail this dismal outcome as a harbinger of good things to come.  I expect the many to take a more jaundiced view, because, to quote from section 6 of the report, compensation of employees “slowed to 0.6% in Quarter 2, which was the weakest growth since Quarter 4 (Oct to Dec) 2016.”

Slow expansion of our economy, depressed productive activity, and stagnation of earnings, austerity in real time.

Johnna Montgomerie: “people going into debt is how the UK economy putters on”.

Growth figures released today say the UK economy grew by 0.4%, compared to 0.2% last quarter. There is nothing to celebrate in yet another fraction of a percent of GDP growth. It is clear the UK economy is in the doldrums without any prospect of the winds picking up. The UK is at the bottom of the G7, the ‘sick man’ of the advanced economies around the world.

The biggest problem is that even this meagre performance is heavily reliant on record levels of consumer credit. People going into more and more debt is how the UK economy stays on life support; neither thriving or in recession, it putters on. UK households have seen their outgoings surpass their income for the first time in nearly 30 years. Economic stagnation has taken hold because wage growth is so slow it cannot stimulate economic activity or, increasingly, just manage current outstanding debts. This is why GDP growth isn’t translating into people’s pay packets.

Let us not celebrate mediocrity, and face the fact that the UK economy is a sinking ship. Without a bold and credible plan to chart a new course, expect more of the same in the months and years to come.

Danny Dorling: “the contraction of the financial sector takes place very quietly”.

Hidden in the detail of these figures was the news that Britain’s finance and insurance industries had shrunk, albeit only by a tenth of one percent. While the rest of the UK economy was growing, very slightly and slowly – more slowly than in recent years – growth in finance and insurance activity was negative.

The size of the contraction in these industries in the last quarter was roughly half of that in public administration, which has continued to be squeezed by public spending cuts. Most recently, it was reported that Northamptonshire County council will be making future cuts of up to £70 million. When the cuts in public sector spending were announced, the BBC reported one protestor as saying: “When people die this winter, because they will die this winter, the blood will be on your hands.” Contraction often occurs through a thousand small cuts.

In April 2018, the European Banking Authority (EBA) announced that that the salaries of the highest earning bankers in Europe had begun to fall. Almost all of the highest earning bankers are based in London. The EBA is currently based in London, but will be moving to Paris soon.

Unlike public sector cuts, which have immediate and obvious effects and result in protests reported by the BBC, the contraction of the finance and insurance industries in the UK takes place very quietly. It is not in the interest of the banks to point out who among their staff is moving to Paris or Frankfurt or Amsterdam and whether it is the younger bankers and lawyers without families who are moving first. And it is not in their interest to point out that they are now paying themselves less, as most people still understand that the highest paid bankers have been paid far too much. But hidden in today’s ONS report is yet more evidence of the contraction of what had been the UK’s most successful industry.

Richard Murphy: “nothing of any substance to celebrate here”.

The UK’s growth figure for the second quarter of 2018 has just been reported to be 0.4%. Compared to the 0.2% reported in the first quarter this sounds like an improvement. And in purely statistical terms it is, of course. That is the only indisputable thing about it.

Standing back this data remains deeply unexciting. And if it is understood that the first quarter may simply have been depressed by poor weather, which meant consumers deferred some spending simply because they could not, or would not, get out, then the bounce (if it can be called that) might well be little more than a correction.

And let’s also be candid; when the figures are so small, and the boundaries for reporting are so wide in proportion to them, the margins for error in this reporting are very high. No wonder the pound is still falling – they’re treating the change as no sign of a significant difference in the overall economic environment.

So my point is that we should go back to fundamentals. This growth rate is still very low. There is, despite what the Bank of England is forecasting, little sign that it is flowing through to wage rates. There are signs that it is private debt that continues to fund consumption growth. And there is massive uncertainty for the UK ahead, which is one reason why we remain so weak in comparison to other economies.

There is nothing of any substance to celebrate here. But there is ample reason to think there may be more trouble ahead.

The post Latest GDP figures: the PEF Council reacts appeared first on The Progressive Economy Forum.

Today (1 August 2018) the ONS released their early indicator estimates from the Wealth and Assets Survey (WAS) – preliminary estimates about people’s attitudes towards their financial situation during the period from July 2016 to December 2017.

We need to remember that these results are based on survey data. As such, there might be some tension between the picture given by individuals’ reported answers and, say, quantitative data on household income and expenditure.

For instance, the WAS survey found that 12% of respondents frequently (“always” or “most of the time”) ran out of money by the end of the week/month. Though the figure is still worryingly high, this is a fall from the ONS’ findings in July 2010-June 2012, when 16% of respondents chose these options. Even if the level of financial precariousness is worrying, we might be optimistic about the direction of the trend.

However, data from the ONS released last week tell a different story. For the first time in thirty years, households are spending more than they earn in income – the average household is a net borrower, which wasn’t the case even in the credit boom before the Global Financial Crisis (GFC). As a result, consumer credit – including credit card debt and pay day loans – is at record levels.

These data present a starkly different picture than the WAS results. At this stage, then, it would be reckless to take the latter as a reason for optimism about UK households’ financial health.

Moreover, the data on young people and the North East are cause for concern, especially in light of the UK’s persistent and stark regional and intergenerational inequalities.

1. Young people are in a particularly precarious situation

Unsurprisingly, young people reported much higher levels of financial precariousness than the average respondent. One way of measuring financial precariousness might be how well someone can deal with an unexpected loss of income. When surveyed, 44% of respondents said that they would not be able to make ends meet for longer than three months if they lost the main source of income coming into their household.

But if we zoom in on 16 to 24 year olds, this figure rises to 68% of respondents – 71% if we look at 16 to 24 year olds not living with family. Perhaps even more worryingly, 50% of 16 to 24 year olds living independently wouldn’t be able to make ends meet for more than a month if they lost their main source of income.

Though our employment levels are high, the UK has seen a rise in ‘insecure work’ and young people are disproportionately likely to be in these insecure jobs. As a result, we should be particularly concerned by what the WAS survey says about their vulnerability to income shocks.

2. The North East has fared particularly badly

Accordingly to the WAS results, most regions have seen a decline in the percentage of people frequently running out of money at the end of the week/month since 2010. This has not been true for the North East; 20% of respondents from this region reported that they were in this situation, up from 19% in June 2010 – June 2012 and, alarmingly, from 15% in July 2014 – June 2016.

The North East fared similarly when it came to respondents’ ability to deal with a loss of their household’s main source of income. While 74% of respondents as a whole could make ends meet for longer than a month in this situation, only 61% of respondents in the North East could say the same.

Photo credit on previous page: Flickr / Low Jianwei

The post ONS Wealth and Assets Survey: Young people, North East fare badly appeared first on The Progressive Economy Forum.