Andrew Sentance

Independent business economist and member of the Bank of England’s monetary policy committee (MPC) from 2006 to 2011

As we have seen in many months in the past couple of years, the economic data has provided a mixed bag of evidence. GDP growth slowed in the final quarter of last year, and business investment was nearly 4% down on a year ago. Export volumes grew by just 0.2% in 2018, the lowest growth rate in the volume of overseas sales since the global financial crisis.

On the other hand, employment growth has been strong and consumer spending has been resilient. Public finances also show a positive view of the economy, with tax receipts coming in stronger than expected. Inflation has fallen to below 2% while wage growth has been picking up.

Brexit uncertainty slows economy and raises risk of job losses Read more

In this mixed picture, however, there are a number of indications that the longer-term outlook is not sound for the post-Brexit UK economy. First, while the jobs numbers currently look positive, we have seen a number of negative announcements which will affect the employment outlook in the 2020s, most recently from Honda but also from many other international investors in the UK. Second, productivity shows little sign of recovering. Headline employment is up 1.4% on a year ago, but GDP has risen just 1.3%. All of our economic growth is coming from job creation and none from increased productivity.

A third worrying indicator is the trade balance. The UK’s trade deficit in goods and services exceeded £10bn in the fourth quarter of 2018, a level reached only in four previous quarters in our economic history. Finally, the negative trend in investment looks set to continue, according to surveys of business opinion.

In the second half of 2016, after the Brexit referendum result, resilient consumer spending supported the economy before the slowdown which followed. We may be seeing the same thing now. The forward-looking indicators – productivity, trade performance, investment and job announcements – point to a further weakening in the UK economy.

David Blanchflower

Professor of economics at Dartmouth College in the US and member of the MPC from 2006 to 2009

The Brexit deadline of 29 March looms. Worryingly, according to the Bank of England, half of businesses feel they are not ready for a no-deal, no-transition Brexit. Uncertainty prevails, which of course caused business investment to fall last year. GDP growth in the UK is slowing, with fourth-quarter growth at 0.2%, down from 0.6% in the previous quarter as Brexit approaches. Plus, the growing list of firms planning to leave the UK is growing apace in a worrying sign for the future. Statistics bureaus have a hard time of working out turning points, and the numbers are often revised down, just as they were in 2008.

Gertjan Vlieghe, a current MPC member, has argued that Brexit is already costing the UK £800m a week, more than double the £350m a week savings that leavers had wrongly suggested Brexit would bring. Oops.

It is unclear how much of this slowing is down to Brexit. But what is clear is that Britain leaving the EU couldn’t have come at a worse time, as the very long global recovery since the financial crisis is now coming to an end.

Trade wars haven’t helped and neither have rate rises in the US. Italy is already in recession and Germany is close, with zero growth in the last quarter, and negative growth in the prior quarter. There is also a growing prospect that the US will be in recession within a year. Markets are increasingly pricing in the next rate decision by the Federal Reserve to be a cut. Industrial production figures in Europe have been disastrous, with 17 out of 27 countries recording negative growth in December.

I was especially struck by the declines in UK consumer confidence. In the latest release for the UK for January, there were big drops in consumers’ reports of their financial situation over the past 12 months and their expectations on what will happen to them over next 12 months. There has also been a marked pick-up in unemployment expectations over the next year.

That brings us on to the labour market, which is a lagging indicator, and has started to show some signs of slowing. Closing plants hits jobs and wages.

So far employment has continued to grow and the unemployment rate remains low, but there are signs of weakening. The number of temporary workers and people in underemployment has started rising.

Commentators have wrongly focused on the annual growth rate of 3.4%, which has been driven by what happened a year ago – so called base effects. On the monthly basis, the picture is less robust. Average weekly earnings growth has stalled at £527 per week for the last three months in a row, and has fallen from £528 in October to £525 in December in the private sector.

We need to focus on what is happening now as Brexit approaches, not what happened in those halcyon pre-Brexit days. Stand by for gale-force winds approaching.