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What's happening to the UK economy?

21 February 2014

Amazing what a difference a year makes!  Not long ago we were talking about a triple-dip recession. A couple of months ago the economy was showing signs of strong growth.  Unemployment has been falling rapidly  towards 7%.  This has embarrassed the Bank of England a little, given they were predicting that target to be reached in 2015.  The pound has surged against a basket of currencies which has helped reduce inflationary pressures. Inflation is now at 1.9%, the first time it has dropped to the desired levels for years. Mark Carney no longer needs to write those letters to the Chancellor explaining why he has failed to hit the target.  So all is rosy??

There are some other strange goings on in the economy.  The productivity conundrum is where we are making less per employee than before.  This has meant that there is still spare capacity in the economy and little upward pressure on wages.  Until companies invest more and worker productivity increases, interest rate rises are probably still some way off.   However, with the election next year, some feel good levers might need to be pulled!

The fiscal surplus has increased less than expected as corporation taxes have been  lower and the latest statistics from the retail consortium has shown an unexpected fall in retail sales.

Did anyone see Robert Peston's programme on China?  I watched it last night and there could be an accident waiting to happen there with consequences for the whole global economy.  The country has embarked on a huge explosion of credit with house prices rising 20% a year and huge infrastructure projects going ahead.  Will it all end in tears? Who knows?

Never before has a command economy created a banking system the size of the US in just 5 years....

The markets appear to be relaxed about the China's "shadow banking" sector, credit explosion and corruption so we shouldn't be worried either.  Or should we?

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