UK labour market resilient as business confidence drops

EPA-EFE//ANDY RAIN

The Bank of England Governor Mark Carney speaks to the press at the Bank of England in London.

UK labour market resilient as business confidence drops


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The British economy is increasingly reliant on retail for growth while productivity, manufacturing, and service output are falling.

The British Gross Domestic Product grew by 1.4% in 2018 – the weakest in six years – and is projected to slow further in 2019. Britain’s economy has lost approximately £10 billion in investment since the June 2016 referendum on EU membership.

The economy is now running on previously built momentum, driven mainly be retail demand. Another positive factor for growth has been stockpiling in anticipation of a disorderly Brexit. However, the country’s output is set for a sharp drop as companies stop creating greater inventories.

The UK recently reported the highest level of employment since 1974 and unemployment now stands at 3.9%. A tight labour market has also been positive for incomes, which continue to rise above inflation, with wages returning to pre-referendum levels. Demand for credit is, however, slowing and public confidence in the economic outlook is weaker in the United Kingdom than in any other EU country, according to the European Commission’s data.

Productivity crisis

The UK is the only G7 economy likely to see a decline in productivity growth in 2019, according to a study released on Monday by the US-based Conference Board non-profit research group.

The study underscores that the UK has been unable to recover from its decade-long productivity crisis, which struck during the 2008-2009 financial crash. Taking into account the overall labour force qualifications and capital stock, productivity has actually declined since 2010.

“Despite the fact that balance sheets are clean, the economy has no spare capacity and the monetary policy is accommodative, the labour market is incredibly tight — everything says invest, invest, invest, but there’s this extreme uncertainty,” the Governor of the Bank of England Mark Carney told the Financial Times on the sidelines of an International Monetary Fund meeting.

A Deloitte survey conducted between on 26 March 26 and 7 April suggests that 49% of Chief Financial Officers in the UK are in fact reducing capital expenditure in view of Brexit risks. More worryingly, 81% of the CFOs expect a long-term deterioration in Britain’s business environment.

 

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