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UK activity has softened since the vote to leave the EU. The UK slowdown has been pronounced, though less severe than widely predicted on the eve of the referendum, and has left the UK slowing into a global recovery.
I’ve been relatively positive about the UK and was surprised by the weakness of first quarter growth, with GDP expanding by 0.1%, the slowest pace in more than five years. (Trend growth is around the 0.4%/0.5% mark). Bad weather may have played a role in the slowdown, but household spending and business investment have softened, with Brexit seemingly the main driver. The 2016-17 devaluation of sterling has fuelled inflation and squeezed the consumer and uncertainty seems to be weighing on business sentiment.
The outlook for UK in the next year will be heavily influenced by the outcome of the Brexit negotiations and the pace of global growth.
I don’t recall a time when there has been so much interest and anxiety about the effects of new technology on jobs. Last week I took part in a panel discussion at the House of Commons on the future of work. These are the ideas I tried to convey.
The changing size of the state tells the story of modern nations and the ideas that shape them.
Until the late nineteenth century the civilian state scarcely existed. In 1692, when comprehensive records for what was to become the UK started, civil spending by government came to a modern equivalent of around £90 million. A country that was about to acquire a vast empire was governed with a budget equivalent to that of today’s Food Standards Agency.
In the last decade Britain and the US have experienced an unusual combination of soaring asset prices and sluggish wage growth.
Between 2006 and 2016, the total value of assets held by UK households rose by 59% while average incomes increased by just 24%.
The oil price has had a turbocharged run in the last year, rising almost 60%. Last Friday it closed at a three year high of $77 a barrel. From the, early 2016, lows of under $30 the oil price has risen by over 160%.
Three factors explain the rebound in oil prices.
First, the global economic upswing has come faster than expected fuelling demand for oil and bolstering prices. Despite a first quarter wobble, the global economy is likely to grow at the fastest rate in seven years in 2018.
A post-World War II wave of liberalisation reduced barriers to trade and helped fuel a global boom in exports. The Uruguay Round of negotiations between 1986 and 1994 marked the high point of this process. It was the largest ever trade negotiation and significantly reduced barriers to trade in goods. Since the 1990s the momentum of trade liberalisation has slowed, and since the financial crisis, almost ground to a halt. The election of Mr Trump, an ardent critic of the international trading order, is indicative of how much things have changed.
Last month Deloitte’s economists from across the world met in London to assess the outlook for the global economy. It was a fascinating and wide-ranging discussion. Rather than trying to summarise individual views, here are some of the areas where the discussions affected my own thinking.
The global recovery has moved up a gear in the last year. The year 2018 is likely to be the best year for world growth in seven years. But this is a mature recovery and, at the risk of sounding like a kill joy, this is about the time you’d expect the economic cycle to start rolling over. For the rich western economies the second half of 2018 is likely to mark the peak in growth.
There are numerous explanations for why technology is no longer boosting productivity in the way it did in the twentieth century. The US economist, Robert Gordon, argues that today’s technologies are less productivity-enhancing than the great inventions of the past. The opposing view is that technology is still working its magic, but in ways, such as improving the quality of goods and services, which are poorly captured by the statistics.
The latest Deloitte survey of UK Chief Financial Officers (CFOs) released this morning shows that business confidence has edged up and is running not far off its long-term average. CFOs seem to have shrugged off weakness in equity markets and concerns about trade with perceptions of uncertainty dropping to the lowest levels since the spring of 2016, before the EU referendum. This finding fits with our own “Worry Index” which tracks newspaper references to terms relating to uncertainty and risk. It dropped to a ten-year low in the first quarter.