Image: Hans Splinter/FlickrData out this week provides evidence that the UK economy is finally doing the thing that people have been wanting it to do for years, but the big challenge lies ahead.
The problem: the UK economy is too reliant on consumer spending, which largely seems reliant on house prices going up, which may not be sustainable long-term, and puts far too little emphasis on investment and exporting.
It’s not a new problem, people have been complaining about it for decades. And when the 2008 crisis occurred, some thought it may change, but it was a forlorn hope. Interest rates were slashed, and after stuttering for a year or so, house prices began to rise again, household debt starting creeping up, so that today it is not that far short of the 2008 peak. The export revolution fizzled out such that the UK has been flirting with record high current account deficits as a proportion of GDP.
There have been occasions when this looked like changing, but they proved to be short lived.
But now the runes suggest that the UK economy is switching, the question is, can it last?
Two pieces of evidence support the case for change occurring.
Item number one is data on inflation. UK inflation rose to 2.3 per cent in February. This means that unless wage growth sees a pick-up next month, when we get the data for average wages in February, we may well learn that they are not keeping up with inflation. Or to put it another way, real wages growth may be negative.
This will be bad news for the retail sector, bad news for UK house prices and bad news for households.
But at least it may prompt the change the UK is crying out for. They say necessity is the mother of invention, well the switch to export led growth has become necessary.
Cue the latest report from the CBI on manufacturing, covering March.
The CBI’s industrial trends survey brought with it good news on exporting. The export orders balance surged to plus 10, the highest reading since 2013.
In fact, the CBI index also pointed to a slump in domestic demand – but then you would expect that given the squeeze on households.
But there are problems ahead.
For one thing, the pound reacted to the news on inflation, and speculation that this may lead to interest going up sooner than previously expected, by rising.
That’s the thing about relying on a cheap currency to create export led growth, currencies don’t always do as they are told.
We have no idea how the Brexit talks will pan out, but a recent report by PA Consulting said that the cost of buying a new car in the UK would rise by an average of £2,372, after the cost of tariffs are factored in.
It doesn’t have to be like that, of course.
But Brexit Britain has seen complacency set in, and those who dish out warnigns are either called remoaners, or, if they are the BBC – surely the most objective news broadcaster in the world – biased.
Yesterday’s data pointed to change, but the fight is ahead.
