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Economy

Should we be more positive about our economy?

On a daily basis, diligent readers of financial publications consume a wide range of economic data, which act as key performance indicators regarding the state of the UK economy. Invariably, such indicators will always be mixed or open to interpretation, and it can be difficult to make a balanced assessment of the overall picture.

It’s fair to say that, since late June 2016, the narrative has been dominated by one thing: Brexit. Journalists and media are usually quick to make the link between negative data and the uncertainty surrounding the UK’s departure from the EU, while any positive figures that emerge tend to be appended with the words ‘despite Brexit’.

Nearly three years after the surprise referendum result, there continues to be a sense of widespread gloom about the economic status quo in this country. The question is, do the numbers actually lend credence to such pessimism?

The good, and the very good

Say it quietly, but there is no shortage of economic metrics where the UK is currently excelling. The most notable of all is one which was reaffirmed last week, as the unemployment rate reached a new record low of 3.9 per cent. In the three months to February, the number of people in work jumped 179,000, with a total of 32.7 million now comprising the UK workforce. Despite common perception about the so-called gig economy, the ONS has attributed much of this job growth to a surge in the number of people taking up full-time work. And, incredibly, there are still an estimated 852,000 job vacancies.

The continued tightening of the employment market has started to have the desired effect on wages too, which have now increased in real terms for more than 12 consecutive months. While still below pre-crisis levels, inflation adjusted pay is currently rising at a rate of 1.5 per cent - the fastest since the EU referendum.

GDP growth has also been a constant, with positive growth recorded in every quarter since Q4 2012. And while the forecasts for 2019 and beyond are decidedly modest, economists don't appear to be anticipating a recession anytime soon, and our numbers stack up favourably against many G7 counterparts.

The public finances have also improved vastly in recent years, with borrowing levels consistently outperforming expectation, and predicted to come in at their lowest level in pound terms since 2002 for the tax year 2018/19.

The list doesn't end there either. Inflation, having soared after the referendum, has since levelled off at 1.9 per cent - broadly in line with the Bank of England (BoE) target. Sterling has stabilised after its initial post-referendum decline. Our tech sector continues to establish itself as a world leader. And UK stocks and shares have largely performed well in recent years, with dividend income paid to UK shareholders reaching a record high in Q1 2019.

As if to sum it all up, Forbes revealed research in December that rated the UK as the number one destination in the world to do business, with these islands being the only country to feature among the top 30 (out of 161 countries) within all 15 metrics used by the magazine to collate their rankings.

The not-so-good

So why, given all of the above, is there so much negative sentiment, with consumer confidence still in negative territory? Sceptics will have their own reasons, but, first and foremost, the relentless uncertainty around Brexit is a key factor. In this regard, our politicians certainly haven't covered themselves in glory.

Confidence isn't just low at consumer level either, with business investment having barely grown since 2016, amounting to a sustained period of stagnation not seen for a decade.

There are a number of other indicators which suggest storm clouds may not be too far away as well. House prices have softened considerably over the past year, slumping to their lowest level since 2012. The PMI for Britain's powerhouse services sector plummeted to 48.9 in March - down from 51.3 in February, and thus a possible portent of a downturn. 

Our retail sector and high streets have also come in for considerable punishment in recent times. Interest rates also remain near record lows, leaving little room for manoeuvre for the BoE; should it be required. And, despite the sustained reduction in the budget deficit, our national debt stockpile remains at a terrifying £1.8 trillion – or roughly 85 per cent of total GDP.

So where does that leave us?

With such a broad degree of variance, it's probably now clear why economists are struggling to pigeon-hole the overall health of the UK economy. But even in good times, it's unlikely that any country will score a perfect 10 across all major economic indicators. And these could hardly be classed as good times.

In fact, the global economy - still fragile after the 2008 financial crash - has a cocktail of threats and headwinds to contend with: high levels of debt within emerging economies, slowing demand, political upheaval, struggling banks and potential trade wars to name a few.

So, all things considered, it's surely not unreasonable to conclude that the UK economy has shown remarkable resilience and relative fundamental strength. Or, at least a lot more than much of the media seem to give it credit for.

The vital point to note is that one of the biggest perpetuators of downturns and recessions is consumer sentiment itself, and, in that respect, they can be self-fulfilling. That's not to say we should be under any illusions of milk, toast and honey, and, given the manner in which the last crisis took everyone by surprise, a degree of circumspection over what lies ahead is warranted.

But, equally, let us not seek gloom where there is none, nor discount the many areas in which the UK is defying the odds. Indeed, we may well be just a few doses of sanity in Westminster away from doing a whole lot better. So, soak up the Spring sunshine, fear not about what may or may not happen, and let's all play our part in keeping things moving at the impressive pace that they currently are. 

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