Duncan’s Economic Blog

An excellent post and some gloomy economic news

Posted in Uncategorized by duncanseconomicblog on May 9, 2011

Sorry for the (very) light blogging over the past 10 days, normal service will be resumed tomorrow.

But here are a few things that have caught my attention over the past week.

First – An excellent post by Gavin Kelly & Matthew Whittaker of the Resolution Foundation.

They ask whether the OBR is correct – will households really borrow to maintain living standards?

Despite all the frothy rhetoric about the ‘re-balancing of the economy’ the growth of household consumption will be absolutely pivotal in the resumption of steady growth. Indeed, the key factor determining the strength of theUKrecovery will be the uncertain reactions of millions of households, who are already close to the edge, to further falls in disposable income. The question of whether ever more personal debt can be used to fill the growing living standards gap deserves far more serious scrutiny than it has received to date.

I’ve blogged on similar issues asking if household savings really will fall.

Second –UK economic data over the past week has been troubling.

Survey data tells us that that construction, manufacturing and services have all slowed. According to Markit, who compile thePMI data, say the current results indicate second quarter growth is on track to be around 0.4%.

Income Data Services say that median pay deals are running at 2.5%, well below inflation and signaling a continuing squeeze in living standards.

The NIESR have cut their 2011 growth forecast again, it is now down to 1.4%.

Corporate insolvencies are on the rise.

There is some good news – better numbers from Morrisons and Next may indicate some strength in retail sales and mortgage approvals (a good indicator of consumer confidence) have ticked up a little.

However what does seem clear is that the OBR is looking increasingly out-of-line with other forecasters. A further downgrade to their 2011 growth forecast should be expected.

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