David Blanchflower

Professor of economics at Dartmouth College, New Hampshire, and former member of the Bank’s MPC from June 2006 to May 2009

The big economic stories this month were about prices, wages and spending and a decline in the number of workers in the UK from the EU. Inflation continued to rise in January, with the consumer prices index hitting 1.8%, the highest since June 2014 as fuel prices surged and the food price deflation enjoyed by shoppers in recent years continued to disappear. The weak pound continued to raise manufacturers’ fuel and material costs which rose at the fastest pace for more than eight years.

But more importantly the retail prices index measure of inflation, which is used in wage settlements, rose by 2.6%. This matters when the latest data on wage growth of total earnings showed a dramatic slowing from 2.9% in November to 1.9% in December. So prices are rising faster than wages. As a consequence, this month real earnings, measured in constant 2000 prices, fell from £343 to £341 a week. The buying power of a pay packet is down more than 4% from its pre-recession peak of £356 a week in April 2008. Hurt is returning for workers who inevitably will have to cut their spending.

Brexit economy: can consumers can keep shoring up the UK? Read more

It surprised me, as it did the monetary policy committee, how much people were using up their savings to buy stuff, but this seems now to be coming to an end. It was not surprising then to see the worst bit of economic news this month, the fall in retail sales. Sales volumes fell for the third month running in January, dropping by 0.3%. Taking the latest three months together it was the weakest underlying sales performance for three years. This was the biggest story and may well be the start of something big. Prices rising, real wages and retail sales falling is not a good start to 2017.

Of note also this month is the decline in the most recent quarter compared with the previous one of about 50,000 workers from the EU, who are apparently beginning to be frightened away by Brexit. The big question is whether this trend will continue. The UK is a less attractive place to work with the decline in the pound.

The economy looks set to be slowing again.

Andrew Sentance

Senior economic adviser at the PwC consultancy and former member of the Bank’s MPC from October 2006 to May 2011

The pattern of economic data for the last two quarters of last year was quite clear – stronger than expected growth driven by consumer spending and a resilient global economy. The relatively good figures for public finances reflect that picture as tax receipts are generally a lagging economic indicator.

But the evidence from the data for the first month of this year is more uncertain. Retail sales growth is now clearly being squeezed by rising inflation. So far, a general rise in global inflation is the main reason for this. At 1.8%, UK headline inflation is in line with the eurozone and lower than in the US. But as we move thorough this year we should expect to see more imported inflation following the decline in sterling since late 2015. This is already showing up in the fact that manufacturing input costs are up more than 20% on a year ago. So UK inflation could quite soon move up towards 3% and possibly higher as these price rises come through to retailers and consumers.

Meanwhile, the labour market data continues to point to slowing employment growth, even though unemployment remains historically very low. Manufacturing industry continues to record respectable growth, according to business surveys, but it is the services sector that dominates the pattern of employment growth in the UK.

All this suggests the consumer will be much less supportive of growth this year than last, and this will add to the impact of increased uncertainty on investment spending. We could well see the first clear signs of this slowdown in the GDP figures for the first quarter of this year when they are available in a few months.

