Andrew Sentance

Senior economic adviser at the PwC consultancy and member of the Bank of England’s monetary policy committee from October 2006 to May 2011

We are starting 2018 with a very upbeat outlook for the world economy. Taking all the key indicators of the health of the global economy together – growth, unemployment and inflation – we arein the most positive period of economic performance for the world economy since the financial crisis.

Global growth this year should be close to 4%, and the average unemployment rate for the G7 economies is at its lowest level since the 1970s. Inflation is starting to pick up in a number of countries, with upward pressure on global food and energy prices. However, inflation still remains relatively low in most major economies around the world.



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This positive global picture is supporting the growth of sectors of the UK economy that trade internationally, including manufacturing. The volume of UK exports of goods, excluding oil and gold, is up nearly 10% on a year ago. Strong export performance is providing support to the growth of the UK economy while domestic demand remains relatively weak.

Brexit uncertainty is holding back business investment while the squeeze on consumer spending from inflation continues. Retail sales volumes in the final quarter of 2017 were just 1% up on a year ago, the weakest growth recorded since 2013. This consumer squeeze should ease gradually over the course of this year but it is likely to continue to hold back UK economic growth during 2018. The latest data shows that wage increases continue to run below the rate of price inflation, even though it fell back slightly in December.

PricewaterhouseCoopers’ latest estimate is that UK GDP grew by 0.4% in the final quarter of 2017, which would produce an annual growth rate of 1.4% over the past four quarters – the lowest growth recorded since 2012 when we were in the depths of the euro crisis. While most other major economies have been speeding up over the past year, the UK’s has slowed down. And despite the strength of the global economy, another year of disappointing growth is in prospect for 2018.

David Blanchflower

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

The background to the UK economy’s performance at the start of 2018 is that the stimulus being provided by the European Central Bank has meant the eurozone economy is humming along. Growth in the eurozone is helping to pull along the UK economy, which is growing at a much slower pace.

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The Markit/CIPS UK Services PMI rose to 54.2 in December from 53.8 in November. Alongside solid readings from the smaller manufacturing and construction, this suggests economic growth of between 0.4% and 0.5% in the final quarter of 2017. This though looks likely to still be a lot slower than most other EU countries. In the third quarter of 2017 the UK with growth of 0.4%, versus 0.6% for the EU as a whole, grew faster than only Belgium, Estonia, Greece, Lithuania and Denmark. It seems unlikely the UK will rise up the EU growth rankings in the fourth quarter, but hope springs eternal.

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This month the story is of a struggling consumer. Even though inflation this month fell back to 3%, it is still more than double the 1.4% in the eurozone. The IHS Markit Household Finance Index found British households reported the sharpest deterioration in financial wellbeing, while inflation expectations reached the highest levels for almost four years. That isn’t surprising given the fact that nominal earnings growth in November 2017 was only 2.3%, down from 2.4% a month earlier. This means real earnings fell for the eighth month in a row. Real earnings are still 3% below their levels at the start of the great recession in 2008.

