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Week Ahead: a brief let-up for Britain’s economy

We preview the main financial events of the coming week: the forecast is for showers, with a brief spell of sunshine.

Week Ahead: a brief let-up for Britain’s economy

No weakening in Britain’s jobs market, a decline in inflation as pump prices fall, and a decent increase in shop sales; the sun will shine through the clouds over Britain next week, with a string of relatively upbeat economic figures. But the brightness will be fleeting.

The UK economy has been flat for two years now, the life sucked out of it by weak global demand, domestic spending cuts, above-target inflation, a lack of investment and consumer retrenchment. A return to the growth seen before the downturn, back in 2008, is not expected until 2014.

Why has the jobs market been so ‘cheery’?

Figures on the labour market, due to be published on Wednesday, are expected to be mixed. Unemployment – particularly for younger people – has grown sharply in the recession to 8.2%.

But economists are baffled that it hasn’t been worse. This may be the slowest economic recovery in the past 100 years, but the unemployment level is lower than in other recent recessions. Mike Amey of bond manager Pimco even described this, relatively speaking, as ‘reason for cheer’.

Added to that conundrum is a parallel decline in investment by often cash-rich British companies, which is not only way below pre-recession levels, but also much weaker than in most of Europe. Why won’t they would spend more? The obvious answer is a lingering weariness over the broader economic outlook.

But economists at Citigroup tie the fate of the relatively resilient labour market to the lack of business investment. In times of uncertainty, if they are to expand at all, companies opt for flexible schemes that they can scale back quickly if need be. Labour comes easily and flexibly – in fact it has got cheaper in recent years – while at the same time the tax treatment of investment has become less favourable. Your average hard-nosed exec in a UK-based multinational is going to take their chances on hiring a few extra staff.    

Will this shift to a more ‘labour-intensive' (rather than capital-intensive) structure continue? It depends on whether wage growth stays weak – it’s expected to have been muted in May, with figures due on Wednesday – and whether the strength of the pound stays low, not to mention the broader economic outlook. The International Monetary Fund’s world outlook, due on Monday, could provide more clues here.

Hooray for an abating inflation squeeze

This is all tied closely to the rate of inflation.

Still above the Bank of England’s 2% target, the rate of consumer prices inflation (CPI) has been coming down since peaking at 5.2% in September last year. The CPI reading, the government’s inflation measure of choice, is expected to have ticked down again in June to 2.7%, a 31-month low.

The figures, to be published on Tuesday – after the Office for National Statistics has sent staff to collect 110,000 prices for 560 items – will have been dragged lower by declines in the price of oil, which have led to cheaper transport prices. Food prices have also fallen.

The decline helps consumers, and is feeding through to better retail sales (with figures for June due on Thursday), while also giving the Bank’s monetary policy committee (MPC) the leeway it needs to extend its recession-fighting quantitative easing (QE) scheme, which is inflationary.

The gilt-buying scheme was extended by £50 billion earlier this month, and minutes of the meeting in which the nine-man MPC approved this extra fire power, to be published on Wednesday, could provide clues as to what to expect next.

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7 comments so far. Why not have your say?


Jul 14, 2012 at 12:07

With low global demand I would expect deflation to be the order of the day with of couse the occasional oil blip due to trouble in the middle east.

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alan franklin

Jul 15, 2012 at 10:28

The unemployment figures mentioned are a joke, as they do not take into account the millions (up to five million according to this report -

on sickness and other benefits.

Britain is a great place not to work, whether you are an illegal immigrant, seen pouring into the country daily at ports and airports, expecially in the next few weeks, or just bone lazy. I know of those in the latter category, content to stretch out imaginary ailments to get their weekly handout for fags etc.

Yes, of course the truly ill should be helped. But why then are people often offered "work for cash" by those " on the sick"?

The idea that this shambles of a society, where little in the way of basic education fits the young for work, is going to have some kind of economic recovery any time soon is the biggest joke I have seen in weeks.

Will we recover? Not until the unlikely day that we rediscover basic morality and the difference between right and wrong. That, of course, involves being "judgemental," one of the cardinal sins of the PC society.

We also need to quit the drain - in every sense - that the EU is on Britain. To do that, vote UKIP.

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AndyP via mobile

Jul 15, 2012 at 13:00

"the leeway it (BoE) needs to extend its recession-fighting quantitative easing (QE) scheme, which is inflationary."

This is NOT proven. The only real evidence we have about the effect of QE comes from Japan, which shows two things. One that it doesn't work very well, and two, that it most certainly is not inflationary. Just look at their current and last decade of rate levels.

Well done

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colin wilson

Jul 15, 2012 at 20:36

So very true Alan.

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Jul 15, 2012 at 22:59

Lower inflation is irrelevant when you have not had a pay rise for 3 years!

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Sungai Petani

Jul 16, 2012 at 12:25


With you a almost all the way Alan; pity you spoilt it with your last two words.


If you haven't had a pay rise for 3 years lower inflation is certainly not irrelevant. If your pay is static the last thing you want is rising prices.

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Rose G

Jul 17, 2012 at 11:10

The whole argument has lost me somewhat. None of the so called economists were able to forecast the situation with the banks, and yet, here we go again, worrying about the economy.

As far as I am concerned, they have all lost the plot - my understanding of the consumer society we live in, is that we have all been duped into thinking life was easy by the huge amounts of credit we have been offered by the commercial sector and are now paying for this.

I also understand that the consumer society has become soaked up with the numerous gadgets they have been sold - consumerism does not bring about a happy person, it encourages people to spend money they do not have.

The society we live in seems to require that we all spend more than we earn - our youngsters are encouraged to get into debt by the policies our governments; starting as an indebted student, government policies ensures that you will be paying this debt off for the rest of the next 50 years, guaranteed money for the Student Loan Company & its chief exec.

We cannot boost an economy where there has been saturation - the reason we are selling cars to the up and coming countries, is because we have saturated the market in Europe - we already all have cars, some families 2 to 3 even. We own homes, some own 2 to 3 already - where then are the future customers to boost the economy?

As for the economists and their doom and gloom, good news is that if the Mayan prophecy has any virtue, we will not be around to worry about it.

My concern for the near future is to see the end of my working life, next step, a future outside of Europe.

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