Britain’s recovery has lost momentum, according to the latest economic data. A survey of the services sector revealed that growth had ebbed, while house prices slid by 1.4% month-on-month in April, according to the Halifax. That’s a 5% annual dip and a 20% decline since the peak in 2007. The latest survey by the Royal Institution of Chartered Surveyors points to a tenth month of price falls, although new buyer enquiries stabilised. Retail sales in April soared thanks to the Easter break, said the British Retail Consortium. The three-month average is still marginally down, however.
The Bank of England, meanwhile, trimmed its growth forecasts for this year and next and upped its inflation outlook. Inflation is now expected to peak at 5%. It also hinted at a rate rise before the end of the year by suggesting that inflation would return to the 2% target if interest rates follow market expectations of a rise to 1% by the end of this year.
What the commentators said
One definite bright spot is exports, said Daniel Pimlott in the FT. Helped along by the weak pound, their value rose by 4.2% in the first quarter; in the three months to March, export volumes expanded by 16%. With the trade deficit much lower in the first quarter than in late 2010, the economy might be “rebalancing at last”, said David Page of Lloyds Banking Group. Export orders remain buoyant, agreed Vicky Redwood of Capital Economics. But “the external side of the economy simply isn’t big enough” to compensate for falls in consumer and government spending this year.
The squeeze on incomes, with wage growth far below inflation, is denting consumer confidence. Indeed, it’s heading back towards the 2009 low, added a Capital Economics note. What’s more, the full impact of fiscal tightening has yet to kick in. Partly for these reasons, the housing market is highly unlikely to bolster consumer confidence. The uncertain outlook, along with tight credit, is weighing on demand.
Moreover, as Buttonwood pointed out on Economist.com, houses are still historically expensive. The house price/earnings ratio of 4.3 for first-time buyers, is still double the mid-1990s low. With interest rates having nowhere to go but up, it looks as though “a long slow grind down” for prices is on the cards. Britain’s rebound, said the Confederation of British Industry this week, will remain “patchy and slow”. Indeed, it “may not feel like much of a recovery” at all.