The economic outlook appears to have taken a bit of a downward turn of late, but are some headlines obscuring the brighter picture?
The latest official figures revealed a tick up in unemployment at the end of last year, and economic growth in the fourth quarter was weaker than anticipated.
Meanwhile, a number of retailers have gone into administration and job cuts and store closures have been announced.
At the same time, the time left to negotiate Brexit is rapidly diminishing and, despite a series of speeches by government ministers, we are not much clearer about what the relationship will be.
However, a close look reveals things might not be quite as bad as they first seem.
The main reason for slower growth in the fourth quarter last year was because Britain’s most important oil pipeline, Forties, was hit by disruptions in December.
The pipeline is now back up and running, and a production rebound looks likely. It is worth noting also that growth in the dominant services sector actually accelerated in the fourth quarter.
Low unemployment and wage growth
The labour market figures, on the whole, are quite encouraging.
Employment rose by 88,000 in the three months to December, an annual expansion of about 1%. And although the number of unemployed edged up a little, at 4.4%, the unemployment rate remains very low by historical standards.
Survey measures of firms’ hiring intentions have remained robust too, and suggest that employment growth could even gain momentum over the coming months.
What’s more, there are finally signs that wage growth is starting to pick up pace. Annual growth in regular earnings (excluding bonus payments, which are volatile) rose from 2.3% to 2.6%.
With inflation on its way back down, the squeeze on consumers’ purchasing power is beginning to ease.
Given that this has been the main contributor to the slowdown in consumer spending over the past year or so, this is good news for retailers.
Admittedly, if the economy does continue to expand at a reasonable pace, then further increases in interest rates by the Bank of England are in store.
However, with many households on fixed-rate mortgages, debt servicing costs as a percentage of income very low by past standards, and real wages on the cusp of a recovery, consumers should be able to stomach a further modest rise in interest rates.
Overall the economic picture is more nuanced than the headline figures suggest.
While there are plenty of headwinds, the fact that the real pay squeeze is easing provides significant reason to remain optimistic about the near-term outlook.
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