Economic Monthly Review – August 2018

ContractorUK has provided the following brief overview of the economic landscape and a background into the current market. Sourced from Contractor Wealth.

Interest rates up

The Bank of England (BoE) has raised interest rates for only the second time in more than a decade, but stuck to its previous guidance that any further monetary tightening is likely to be only gradual and limited in extent.

After making the announcement, BoE Governor Mark Carney suggested it was likely that further rate rises would be required over the next couple of years, in order to fulfil the BoE’s obligation of keeping consumer price inflation at around 2%.

However, he also stated that there was no immediate need for further action, particularly while Brexit uncertainties loomed on the horizon and stressed that any further monetary tightening was likely to be only in a limited and gradual fashion.

UK economy warms up

Second quarter data confirmed that the UK economy did bounce back from its winter slump although it also suggests that any momentum is unlikely to be maintained over the coming months.

Official data released by the Office for National Statistics (ONS) shows that UK gross domestic product (GDP) rose by 0.4% during the April–June period. This was twice the rate recorded during the first quarter of the year and confirms that the economy did rebound from its ‘Beast from the East’ induced winter slowdown.

However, while the economy did clearly bounce back during the second quarter, the rate of underlying growth remains modest by historic standards. With Brexit-related uncertainties continuing to hit growth prospects and the recent interest rate rise likely to dampen consumer demand to some degree, the UK could be set for a period of relatively sluggish economic expansion.

Improvement in public finances

Chancellor Philip Hammond has received another welcome boost with the latest public finance statistics reporting the largest July budget surplus in 18 years.

July is traditionally a healthy month for government finances due to the seasonal impact of self-assessed income tax returns. And this year receipts were particularly buoyant with data released by ONS revealing that the Treasury collected £2 billion more in revenues than it spent during July.

This surplus was £1 billion above the comparable figure recorded in the same month last year and the biggest surplus for any July since 2000. It was also significantly higher than the consensus forecast amongst economists and left the financial year-to-date borrowing total at just £12.8 billion. This was £8.5 billion less than the same period last year and represents the lowest April–July year-to-date borrowing figure in 16 years.

Average pay £13 a week less than a decade ago

A study by an independent think tank has found that average earnings remain significantly lower than they were a decade ago, despite employment currently standing at a record high level.

The analysis by the Resolution Foundation aimed to consider how close the UK currently is to full employment. It found that between 2008-09 and 2016-17, employment rose by 2.1 million, with the main beneficiaries being lower income households.

However, the study also cited legitimate concerns regarding the quality and security of many of these additional jobs, pointing out that around 800,000 people now work on a zero-hours contract.

As a result, while the UK has achieved an impressive performance in relation to job creation, the impact on pay has been less inspiring. In fact, real average earnings were found to be around £13 per week lower than a decade ago.

Editor’s Note: This economic overview has been sourced from Contractor Wealth – providers of Pensions, Savings and Investments.