Recovery on track but for how long? City Comment
8 May 2014
Sterling now sits at a five-year high as recovery encourages thoughts that the Bank of England may raise rates earlier than previously widely envisaged.
Thu, 8 May 2014 | Sue Dodd, director, Agile IntelligenceSterling now sits at a five-year high as recovery encourages thoughts that the Bank of England may raise rates earlier than previously widely envisaged.
With its monthly meeting this week not expected to herald a rate rise quite just yet but a definite shift in the mood music anticipated, the pound almost reached $1.70. As the Organisation for Economic Co-operation and Development (OECD) upgrades its current year GDP growth forecast for the UK to 3.2%, compared with an OECD average of just 2.2%, and a further raft of positive business surveys are published, this all points to decisions in the pipeline to tighten monetary policy even if it still takes (possibly) a few more months to materialise.
While the economic growth is welcome – it would be churlish to complain – its impact is complex. The need to rebalance the economy towards production may easily be derailed by premature rate rises, which fuel Sterling and reduce export competitiveness. Yet on the other hand the eventual consequences of an over-heated housing market are already seared into our national psyche and require little further illustration.
Perhaps though the world has moved on – maybe for the larger exporters at least their global supply chain (and often offshored workforce) helps mitigate the impact of any one currency, even the one the company is domiciled in? For the smaller UK producers, however, if economic recovery leads to higher interest rates and Sterling appreciation, then it is a double-edged sword if their major input costs are in Sterling.
Meanwhile a closer look at the housing market suggests a less than uniform recovery across the UK, while the growth in employment is open to some interpretation and household incomes remain under pressure, although earnings are now on the up again. All this is to be weighed by the Monetary Policy Committee (MPC) against its inflation expectations, when it meets this week to determine when it should increase rates.
Is it just sour grapes or is there really a sour taste to this recovery? Taking the politics out of economic arguments is always tricky and none more so than dealing with the sensitive issues of unemployment and employee terms and conditions, so the furore over zero-hours contracts is one perhaps best left to the politicians.
However, delving into the detail may provide a clearer view of what is really happening and this is now a priority for the Office of National Statistics which has just published snapshot data, established from its latest business survey, of 1.4m such contracts in action earlier this year but, as they themselves admit, this is still far from the whole story. Assessing how many more exist (estimates range up to a further 1.3m) what, whom and where these contracts have most impact is essential before action or inaction is sanctioned.
As official employment and job vacancies continue to strengthen so too does the weight of positive evidence from recruiters. With rising job indices, signs that the recruitment market is recovering are evident from several of the Q1 results seen so far with mainly high single or double-digit growth posted. Both contract and permanent growth is reported by most companies with a definite upturn in the latter now as business confidence soars and candidates become more willing to move.
So far, as the UK is poised in Q2 to officially surpass its pre-recession GDP peak, the outlook for the recruitment industry remains as positive as hoped as it tracks the strengthening economy, and Mark Carney, the new governor at the Bank of England, has not quite yet turned into a party pooper.
With its monthly meeting this week not expected to herald a rate rise quite just yet but a definite shift in the mood music anticipated, the pound almost reached $1.70. As the Organisation for Economic Co-operation and Development (OECD) upgrades its current year GDP growth forecast for the UK to 3.2%, compared with an OECD average of just 2.2%, and a further raft of positive business surveys are published, this all points to decisions in the pipeline to tighten monetary policy even if it still takes (possibly) a few more months to materialise.
While the economic growth is welcome – it would be churlish to complain – its impact is complex. The need to rebalance the economy towards production may easily be derailed by premature rate rises, which fuel Sterling and reduce export competitiveness. Yet on the other hand the eventual consequences of an over-heated housing market are already seared into our national psyche and require little further illustration.
Perhaps though the world has moved on – maybe for the larger exporters at least their global supply chain (and often offshored workforce) helps mitigate the impact of any one currency, even the one the company is domiciled in? For the smaller UK producers, however, if economic recovery leads to higher interest rates and Sterling appreciation, then it is a double-edged sword if their major input costs are in Sterling.
Meanwhile a closer look at the housing market suggests a less than uniform recovery across the UK, while the growth in employment is open to some interpretation and household incomes remain under pressure, although earnings are now on the up again. All this is to be weighed by the Monetary Policy Committee (MPC) against its inflation expectations, when it meets this week to determine when it should increase rates.
Is it just sour grapes or is there really a sour taste to this recovery? Taking the politics out of economic arguments is always tricky and none more so than dealing with the sensitive issues of unemployment and employee terms and conditions, so the furore over zero-hours contracts is one perhaps best left to the politicians.
However, delving into the detail may provide a clearer view of what is really happening and this is now a priority for the Office of National Statistics which has just published snapshot data, established from its latest business survey, of 1.4m such contracts in action earlier this year but, as they themselves admit, this is still far from the whole story. Assessing how many more exist (estimates range up to a further 1.3m) what, whom and where these contracts have most impact is essential before action or inaction is sanctioned.
As official employment and job vacancies continue to strengthen so too does the weight of positive evidence from recruiters. With rising job indices, signs that the recruitment market is recovering are evident from several of the Q1 results seen so far with mainly high single or double-digit growth posted. Both contract and permanent growth is reported by most companies with a definite upturn in the latter now as business confidence soars and candidates become more willing to move.
So far, as the UK is poised in Q2 to officially surpass its pre-recession GDP peak, the outlook for the recruitment industry remains as positive as hoped as it tracks the strengthening economy, and Mark Carney, the new governor at the Bank of England, has not quite yet turned into a party pooper.
