Economic recovery is set to slow

published 7 January 2016

The latest data suggest the economic recoveryis losing momentum. The pound hit a nine-month low against the dollar as it emerged that the PMI index of activity in the services sector, which makes up around 75% of the economy, edged down in December. A sub-index covering business expectations fell to a three-year low. The PMI covering manufacturing declined to a three-month low in December. Meanwhile, household borrowing in November posted the largest monthly increase since before the crisis, a rise of £5.3bn. It is now rising at an annual pace of 3.2%.

What the commentators said

Growth probably came in at around 2.2% in 2015, according to Markit's Chris Williamson, but 2016 could be tougher. The fall in business expectations suggests firms are "becoming more cautious in the face of growing uncertainties", notably the cost of the living wage, government spending cuts, global growth jitters and the potential ramifications of Brexit.

The bigger picture, meanwhile, is that for all the talk of rebalancing the economy towards business investment and export-led growth, "this recovery, like others, will remain consumer-led", said Andrew Smith of the Industry Forum. Still, it's far too soon to panic about a private debt bubble bursting as it did in 2008. Measured as a proportion of disposable income, household debt has ticked up to 143% of disposable income, down from 165% before the crisis.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Nevertheless, firing on just the one usual cylinder does leave the economy looking exposed when interest rates finally rise and consumption slows.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.