At first glance, the latest economic data for Britain look reasonably upbeat. Industrial production increased by 0.4% in September, pushing year-on-year growth to 3.8%. Manufacturing was up 4.8% annualised, while the trade balance didn’t get any worse. And like-for-like retail sales grew 0.8% on the year, according to the British Retail Consortium (BRC) and KPMG retail sales monitor. It’s a shame the underlying picture is less rosy.
What the commentators said
The retail sales rise “reflects shop prices rising at their highest rate since January, rather than volume changes, mainly due to commodity price rises being passed on”, said Helen Dickinson at KPMG. After inflation, total non-food sales fell. And the numbers of customers visiting non-food shops also fell 3.4% in October, said research firm Synovate. The number of shoppers on the high streets has now fallen for 12 months in a row. “Tough trading conditions are unlikely to change in coming months,” said BRC boss Stephen Robertson. No wonder 84% of consumers still think the economy is in recession, while 26% say they’ve no spare cash, said a BRC Nielsen Consumer Confidence survey.
While “the UK industrial recovery is still fairly healthy”, said Vikki Redwood at Capital Economics, “it seems to have lost a bit of pace”. Furthermore, “manufacturing activity will be pressurised… over coming months by stock rebuilding winding down, tighter fiscal policy weighing on domestic demand and slower global growth hitting foreign demand for UK products”, said Howard Archer at IHS Global Insight.
Input price rises are having an impact here too. October ‘factory gate’ costs climbed 2.1%. Even the Bank of England, which has consistently – and wrongly – forecast lower inflation, is now hedging its bets. Its quarterly Inflation Report admits near-term inflation is expected to return to 3.5%, with longer-term prospects “highly uncertain”. The bank’s Monetary Policy Committee is “ready to respond in either direction”. That’s bank-speak for no more quantitative easing for now – and don’t count on interest rates staying where they are.
The one area of the economy clearly not suffering from rising prices is housing. The Royal Institution of Chartered Surveyors’ October report saw a net balance of 49% of surveyors reporting falling house prices, the worst since April 2009. Brian Jackson of Ellis & Sons in Southport summed it up: “a feeling of doom and gloom now prevails”.