This week’s news on the economy

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It’s been quite a busy week for data releases – both at home and internationally. We’ve covered a few of the key ones (inflation and R&D spending) this week on our blog – but here’s a quick round up on what else we learned about the economy this week.

Wages definitely haven’t been increasing, but views are mixed on whether they might soon

The Annual Survey of Hours and Earnings (ASHE) showed that median weekly earnings had barely budged over the past year, with full-time employees taking home just £1 a week (or 0.1%) more than a year ago. This was the weakest earnings growth since 1997.

Full-time employees in manufacturing did somewhat better last year, with median pay up 1.2%. This means that gross pay was 3.7% higher than the national average.

It’s what happens next that is of greater significance to policy makers and on the MPC views are diverging. As highlighted in the November Inflation report the profile for wage growth over the next couple of years remains pretty uncertain – the key unknowns are the extent to which a low inflation environment will hold down pay increases, the amount of slack in the labour market and the pace it is being eroded and whether a pick-up in confidence more broadly could push wage settlements higher than expected.

UK consumers still consuming

Retail sales continued on their upward trajectory in October with volumes up more than 4% on a year ago. On a whole range of components the news seemed to be positive – non-food, household goods and non –store retailing were all up strongly. All of which bode well for another positive contribution from household spending to GDP growth in the fourth quarter of this year and very little to indicate that a short term change of direction is likely.

The news from Europe isn’t getting any better

Similarly, there’s little to indicate a material change in the outlook in Europe is on the cards either. Last week’s GDP releases showed that activity was pretty flat across Europe and still falling in some countries – notable Italy.

Flash PMIs for November suggest we can look out for more of the same. The eurozone composite PMI hit a 16-month low. The main movers were: German services and French manufacturing output – both down, not quite offset by a slight pick-up in confidence in services confidence in France.

In the next couple of weeks we’ll be releasing our Q4 manufacturing outlook report, complete with new forecasts for 2015.

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Chief Economist

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