Economy in ‘wait and see’ mode

Good news on the economy last week as the ONS upped its estimate of annual GDP growth slightly, by 0.1 percent.

The employment figures, also released last week, showed an improvement on the previous quarter but a slight fall from the previous month.

As ever, the Resolution Foundation was quick off the mark its charts.


The number of full-time jobs dipped back below its pre-recession peak too and there was a slight increase in unemployment on the previous month.


Via Michael O’Conner, also one of the most reliable rapid chart makers.

There was also a slight uptick in economic inactivity.

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More widely reported was the drop in pay, the first since 2009, with wage growth still well below inflation.

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The CIPD’s Labour Market Outlook found that the median pay increase was down on last year; 2 percent, compared to 2.5 percent in 2013. The proportion of employers expecting to give a pay increase over the next year fell slightly from 48 percent to 42 percent. The Bank of England has halved its wage growth forecast for this year.

The CIPD also noticed a “modest fall in employment intentions” since the last quarter.

This quarter’s net employment balance – which measures the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels in the second quarter of 2014 – has decreased to +23 from +26 since the spring 2014 report.

It would be unwise to attach too much significance to small setbacks. These figures could all just be a statistical blips. As graduates and school levers are taken on by firms this summer, the employment figures should rise again. It is likely that the underlying trends from the previous year are set to continue. The Wall Street Journal thinks so, predicting a wage take-off in the UK over the next year, as falling unemployment gives workers more leverage. Ben Chu, while fairly downbeat about the short-term, is keeping the faith in a productivity increase and, with it, the recovery of at least some of the economy’s lost ground.

All the same, in a strong recovery you wouldn’t expect to see blips, not even small ones. The CIPD survey showed that a number of employers are in ‘wait and see’ mode, especially when it comes to pay and that this uncertainty has increased recently.

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Anecdotally, this slightly downbeat feeling is consistent with what I hear from talking to people both in public and private sector organisations. Small cautious steps seem to be the order of the day. The recovery may be strong, as some commentators keep telling us, but it’s clear that not everyone is sure enough to commit to pay rises or more recruitment. I hear things like, “I reckon things are improving but….” and the further away from London people are, the more likely they are to finish off with “….we haven’t seen much of it round here.”

OK, these are I Met A Man stories but recent data on consumer confidence suggests the feeling may be more widespread. The percentage of people expecting the economy to improve continues to rise but the percentage expecting their own circumstances to improve has started to fall. Again, only slightly.


Chart via Michael O’Connor

People have heard the economic growth stories in the news but many are not quite feeling it yet.

These may be small splutters before the great economic engine starts running at full speed again. But, even when they are chugging along steadily, the strongest engines can stall. As I said last month, we are still a long way from a normal recovery. For now, the bubbly is staying in the fridge, while we wait to see what happens.

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2 Responses to Economy in ‘wait and see’ mode

  1. Dipper says:

    In agreement as always. As I said here back in July:

    “The supporting numbers will be a deficit that never seems to fall, a balance of payments that never seem to improve, export growth that never picks up, investment figures that never increase, no growth in wages. I’m expecting to see these trends maintained for a while yet.”

    the current “boom” is, as usual, based on borrowing on the back of increased housing prices and borrowing £1000 per person per annum more than the government had planned at this point. The rise in GDP is partly caused by relocating businesses and workers from the continent to the UK not by any improvement in what your average long-staying UK worker is doing.

    The big question is whether this artificial boom will give business the space to do something a bit more transformational. The indicator for that would be increases in investment and wages, both of which are still low.

    And is it just me or do news outlets not do analysis any more, instead they pass on whatever press hand out they have been given? Why do I have to come here for quality in-depth anaalysis instead of reading it in a national newspaper?

  2. John says:

    The gap between wage levels and price levels is artificially lowered by using CPI.
    I prefer to look at RPI as an indicator of price levels.
    In June 2014, CPI was 1.9% while RPI was 2.6%.
    The RPI figure indicates the pay gap to be even wider.
    This lack of effective demand is why the economy is in the doldrums.
    I do not expect it to be taking off any time soon.

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