Bill Jamieson: Storm battered signs of growth

Amid one of the stormiest starts to the year on record, it is a feat that the UK economy has managed to survive at all, let alone show signs of growth.

Winds batter the Ayrshire coast at Ardrossan. Picture: Andrew Milligan/PA
Winds batter the Ayrshire coast at Ardrossan. Picture: Andrew Milligan/PA

First came Storm Brendan, then Storm Ciara, rapidly followed by Storm Dennis. Dozens of towns and villages have been blighted by extensive flooding and road, rail and air travel disruption, and high streets have been denuded and building projects disrupted.

Amid all of this it has been a struggle to find cheer of any sort. But against the most inclement weather, the UK has been showing signs of recovery. Seasoned observers will recall the dismissive snorts that greeted former chancellor Norman Lamont’s talk of “green shoots” in the wake of Britain’s inglorious exit from the European Exchange Rate Mechanism in late 1992. But by the following spring, recovery was in the air. The UK economy rose by 3.3 per cent that year, up from 2.5 per cent previously, and GDP sustained annual growth of at least 2.4 per cent in each of the following four years: a veritable golden era compared with our situation now – and one that few had dared to predict.

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Today the green shoots look altogether more modest under our leaden skies – but they are increasingly evident and likely to accelerate as we move into spring and summer.

Last week brought encouraging news on several fronts. Among them was a largely upbeat survey maintaining recent signs of progress. The “flash” February Purchasing Managers Index (PMI) survey showed UK services and manufacturing activity stable at the best rate since September 2018. Services activity showed a slight loss of momentum in February but was still at its second-highest level for 17 months. Meanwhile manufacturing activity returned to growth and expanded at the fastest rate for 10 months, and output expectations rose to the highest since June 2015.

“The survey,” says the EY Item Club, “ indicates that the UK manufacturing and services sectors are continuing to benefit from an improved willingness by businesses to spend as a result of reduced uncertainties following December’s general election”.

Output expectations rose to the highest since June 2015.

It reinforced EY Item Club’s belief that the economy will probably achieve GDP growth of at least 0.3 per cent quarter-on-quarter in the January-March period after stagnation in the final quarter of last year.

Separately, the February CBI industrial trends survey pointed to a modest pick-up in UK manufacturing. There was an increase in the new orders balance to a six-month high with export orders also at a six-month high. Output expectations for the next three months picked up to reach a 12-month high. However, the orders balance is still below its long-term average and there are signs that some businesses are still relatively cautious about lifting their investment and hence demand for capital goods, despite increased confidence. Given the continuing uncertainty over Brexit negotiations and the inclement weather, this caution is only to be expected.

Last week also brought better news on the labour market. Employment at the UK level was up 180,000 in the three months to December to reach a new record high of 32.9 million. The employment rate also hit a new record of 76.5 per cent and vacancies rose for a second month running. Unemployment is also the lowest since late 1974.

Howard Archer, chief economic advisor to the EY Item Club said: “The latest jobs data are impressively strong given the heightened uncertainties facing the economy in the final months of 2019 as well as a stagnating economy over the fourth quarter. Even allowing for employment being a lagging indicator, a rise of 180,000 in the number employed in the three months to December looks impressive, although it was down modestly from an increase of 208,000 in the three months to November.”

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Here in Scotland numbers in work have also rallied. The SNP administration, fiercely opposed to the UK’s exit from the EU, has talked down Scotland’s prospects. But Scotland’s employment rate rose over the quarter to 75 per cent and remains close to the highest on record. Over the same period, the overall unemployment rate fell to 3.5 per cent, close to the record low and 0.3 percentage points lower than the UK’s (3.8 per cent).

This didn’t prevent Business Minister Jamie Hepburn repeating the administration’s lament: “Of course, Brexit remains the biggest threat to jobs, businesses and our economy… The latest Scottish Government State of the Economy report sets out that, even if a deal is reached, firms’ hiring intentions may remain weak this year and jobs growth and staff shortages in some sectors may worsen.”

What of the beleaguered retail sector? Latest ONS figures show the amount of goods sold across the UK in January rose by 0.9 per cent, after falls in the previous two months. It was the largest monthly rise since March and a stronger performance than was expected by economists. January sales were boosted by “moderate growth” by food retailers, which saw sales rise 1.7 per cent during the period, while non-food retail sales also rose, increasing by 1.3 per cent for the month. Clothing sales significantly improved, with clothes and footwear sales up 3.9 per cent, while department stores reported a 1.6 per cent increase.

Finally, when it comes to house prices, where there had been grim predictions of a Brexit-induced slump, the latest data show prices rising across all areas, as a feared surge in interest rates failed to materialise. Land Registry figures for December reveal a post-election boost, with the average UK house price reaching a record high of £235,000 in December, some £5,000 or 2.2 per cent more than a year earlier.

The average house price in Scotland increased by 2.2 per cent over the year to December to £152,000.

The average house price in England also increased by 2.2 per cent over the year to December, up from 1.3 per cent in the year to November 2019, with the average house price now at £252,000.

House sales in Scotland reached a 12-year high in December. Estate agent Aberdein Considine’s Property Monitor report shows that across Scotland, more than 10,000 homes changed hands in December, the highest figure for the month since 2007 and the credit crunch. This was a 15 per cent increase on November’s figure and the highest single month of sales recorded since October 2018. Thus, for all the storms, flooding, wind and rain, we battle on.