Economy badly needs a heroic sprint for Bank to take gold on growth goals
‘The latest tepid signs will put the final nail in the coffin of an August rate rise from the Bank’
PARALYMPIC champion Jonnie Peacock stormed to his second 100m world title in the Olympic stadium last weekend but anybody looking for a similar sprint in next week’s growth figures is likely to be sorely disappointed.
Look at the economy’s performance so far this year and ‘Usain Bolt’ is hardly the phrase that springs to mind.
We’ve been more like Sogelau Tuvalu, the 20-stone shot-putter who famously switched to the 100m in a World Championship heat a few years ago and waddled home more than five seconds behind the winner.
Probably too much store is put by the Office for National Statistics’ first GDP estimate — a political football based on incomplete data — but the figure can be useful in showing the direction of travel. And, after the data we’ve had so far, we’ll be scraping to manage a 0.3% expansion between April and June when the number drops next Wednesday.
Coming after an anaemic 0.2% advance between January and March — even weaker than the numbercrunchers first estimated — we’re on course for the weakest growth performance over successive quarters since late 2012 and early 2013, when the economy was flirting with a double-dip recession. The UK has struggled out of the blocks behind the US and the eurozone, whose economies both produced faster growth than us over the first quarter (0.35% and 0.5% respectively).
Hawks might point to some quirks in the figures, such as volatile pharmaceutical manufacturing for example, but recent official data has been so weak that our industrial sector and construction firms needed a strong June to prevent dragging the economy back in the second quarter, leaving fortunes yet more dependent on services and the faltering consumer.
In bald terms, the latest tepid signs will virtually put the final nail in the coffin of the chances of an August interest rate rise from the Bank of England, but it might also prompt some soul-searching in Threadneedle Street over their growth estimates.
The Bank was badly caught on the hop — like most of the City, to be fair — by the weakness of the first quarter, for which it originally pencilled in 0.5% growth.
The Bank’s economists reckon 0.3% is the likely outcome for the second quarter, which leaves the UK growing at an annual pace of around 1% in the first half of the year.
Yet the inflation report from May has a growth forecast of 1.9% for this year overall.
Basic mathematics says that coming anywhere close to that (barring revisions) will need a heroic performance in the final two quarters, with a quarterly expansion of at least 0.6% across both.
Does anybody really believe that’s remotely possible? The purchasing managers’ surveys are softer and inflation is likely to bite harder in the months ahead, despite the surprise drop in the Consumer Prices Index to 2.6% in June.
Remember, that’s still comfortably higher than the pace at which our salaries are growing, and economists still suspect food prices have further to climb this year. Besides that, there’s an energy price hike in the pipeline from EDF and potentially more of the same from its rivals, which could still prompt an inflation figure starting with a “3” before long.
ON top of that, there’ll be less help for hardpressed shoppers from lenders, after the Bank’s latest survey showed banks clamping down on credit criteria heading into the autumn. Retail sales look patchy and I’m still looking for decent signs of that investment spending boom which Threadneedle Street is hoping for while firms lick their fingers to test the Brexit winds.
In all, I suspect that we’re more likely to see something resembling 2012: a glorious year dripping with gold for our athletes, but not for the economy — which managed growth of just 1.3% five years ago.
Needless to say, an over-hasty rate rise will leave us ever further from the finishing line.
@russ_lynch