WHAT now unites Alex Salmond, the CBI, Sir Mervyn King, the OECD and the Federation of Small Businesses? It’s the economy, stupid.
Last week brought an improbable and extraordinary convergence across all these fronts. For once (and perhaps only this once) they were united in welcoming the latest data on our economy – data pointing upwards.
Two months ago the consensus was in the other direction: no recovery in sight, the government useless, austerity killing us and more monetary stimulus needed.
Now there is a rare unity the other way. Better employment data – at least in Scotland – more encouraging PMI data and business confidence surveys, mortgage lending continuing to rise and the first signs of economic forecasts for 2013 being raised.
To the latest burst of encouraging news there are, of course, a multitude of caveats. The economy is only barely growing. We are starting from an abysmally low base.
Claimant-count unemployment UK-wide is rising. Business investment has barely a pulse. Household incomes continue to be squeezed. And a consumer recovery, to judge by the latest dismal figures from the Scottish Retail Consortium, looks a long way off.
But at least shafts of light are starting to appear.
Last week brought encouraging news on several fronts. Arguably the biggest cause for cheer in Scotland was the record rise in employment at the same time as the number of people out of work continued to fall. Employment rose by 54,000 over the first quarter – the largest quarterly rise since 1992 when the figures began. Scots unemployment fell by 7,000.
Our headline employment rate, which refers to the population aged 16 to 64, rose by 1.1 percentage points to 71.8 per cent – the largest increase in the employment rate of any nation or region in the UK.
Cue glowing statements from Alex Salmond: the figures, he said, showed “the largest rise in employment on record… and our youth employment rate is continuing to make encouraging progress with more young people in work and youth unemployment falling again”.
And from Andy Willox, the Federation of Small Businesses’ (FSB) Scottish policy convenor: “Falling Scottish unemployment is good news, not only for the individuals and families now receiving a regular pay packet, but for the local economies where these wages will be spent.”
Meanwhile, the latest Bank of England quarterly inflation report brought a forecast upgrade for the UK economy – the first time since the onset of the 2008-9 financial crisis.
The forecasts now put growth at 1.2 per cent for 2013 and 1.9 per cent for next year, up from the 0.9 per cent and 1.8 per cent (respectively) projected in the February report. The MPC expects GDP will regain its pre-recession peak in Q2 2014, two quarters earlier than its forecast in February but one quarter later than the MPC’s forecast a year ago.
On the housing front, the Council of Mortgage Lenders (CML) reported further improvement in mortgage advances in March, led by first-time buyers. Mortgages amounted to 42,000 in March, up 14.8 per cent on February. Advances for first-time buyers led the way in March, rising by 20.1 per cent month-on-month to 19,100.
Following an upbeat RICS survey for April, the CML mortgage advances support hopes that house prices are likely to achieve a modest gain of a few per cent over 2013 as activity picks up, modestly supported by initiatives such as the Funding for Lending Scheme and Help to Buy.
Finally, for good measure, the closely watched OECD leading indicator for the UK pointed to modest growth over the coming months. This edged up to 100.73 in March from 100.70 in February and 99.36 in April 2012.
With the economy showing signs of extending its improved performance into April, it has lifted its GDP growth forecast for 2013 from 0.7 per cent to 0.9 per cent. While not a major upward revision and still indicating only modest growth, it is significant in that it is the first time that for an extended period the revision to the forecast has been upwards.
But all of this is missing what may prove to be the biggest transformation afoot: the change in the composition of the domestic economy with an expanding universe of small to medium-sized businesses and an explosion of micro businesses.
Back in 1971, an official report by the industrialist John Bolton identified 820,000 small firms across the UK. The figure now stands at a record 4.8 million.
The number of micro businesses (those with up to nine staff) is up 40 per cent since 2000. They account for 95.6 per cent of all businesses, employ 7.8 million people, or 32 per cent of private sector workers, and account for 20 per cent of the turnover of the private sector.
Incoming Bank of England governor Mark Carney looks set to place greater emphasis on economic performance and growth. The headwinds are still formidable: a continuing inflationary squeeze on real household incomes, low business investment and the malaise in the Eurozone. But the skies are brightening and we may look on the past week as a turning point.