The latest data has disappointed. The annual rate of consumer price inflation (CPI) rose to 4.4% in July from 4.2% the previous month. The claimant count of unemployment posted its biggest rise in two years and the unemployment rate climbed to 7.9% in the April-June quarter.
What the commentators said
Some analysts have questioned disappointing recent GDP figures, noting that the solid labour market data told a different tale. Given that the latest jobs data was “soft all round”, it now appears that this contradiction is being resolved in favour of the weak GDP figures, said Citigroup’s Michael Saunders.
Wage settlements remain subdued, with earnings rising at an annual rate of 2.2%. Inflation is on the rise, with higher utility bills widely expected to nudge CPI over 5%. So real pay is still falling, which bodes ill for consumption. As that comprises two-thirds of the economy, “economic growth will remain modest at best”, said Chris Williamson of Markit. But add the weakening external backdrop, especially in Europe, to the lack-lustre internal one, and it’s no wonder businesses have seen order books weaken, said Samuel Tombs of Capital Economics. This in turn is hardly conducive to hiring.
There is scant prospect of more stimulus. The government will stick to its austerity programme, and high near-term inflation makes it harder for the Bank of England to print more money now, a move that in any case had little impact last time round. So as we slide deeper into stagflation, said Simon Hayes of Barclays Capital, we are just “crossing our fingers…and hoping we see an improvement in the second half of the year”.