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It’s been another hectic week. And it’s only Thursday morning.
Neil Woodford’s crumbling empire finally collapsed.
Brexit talks continued to take the pound on an emotional rollercoaster.
But today I want to turn to the more mundane things in life.
Like what’s actually going on in the economy.
The latest news on employment was weak, but not disastrous
From a markets point of view, the various reports on the UK economy issued this week don’t really matter. At least, not this week.
Investors are all too busy focusing on whether the DUP have really said “No” or “No, but” to Boris Johnson’s latest Brexit plan. As a result, the pound has been bouncing around all over the place.
And yet, beyond the political manoeuvring, life goes on.
(Indeed, there’s a significant part of me that thinks having our legislators occupied with a knotty problem and unable to spend as much time coming up with bright ideas for interfering with our lives is not necessarily the worst thing that could happen. That’s something we should discuss another day.)
So what have we learned about the UK economy this week?
On Tuesday we got the employment data. It was weaker than expected. The number of people in employment fell in the three months to August. That was the first time this has happened in two years. It was driven by a drop in part-time working.
This is just one month’s reading – this stuff is volatile, and regularly revised – so we should take it all with a pinch of salt. But it’s worth keeping an eye on. Logic suggests that if companies need to start cutting back on staff, then part-timers are likely to feel the pinch first.
And it wouldn’t be a surprise if the labour market was cooling at least a bit. After all, manufacturing is unquestionably in trouble globally. And the number of job vacancies is down too. Wage growth cooled a bit too – from an annual rate of just under 4% to 3.8%.
All of that said, this is not exactly a disaster. Employment is still near record highs, unemployment is at 45-year lows, and wage growth is strong – particularly when you compare it to inflation, which was the next piece of important data we got this week.
Inflation is still tame – but are house prices showing signs of perking up?
On the inflation front, the Bank of England’s target price index rose by 1.7% year on year. And even if you prefer the old-money RPIX measure, that only rose by 2.4%. This was weaker than expected. Even the core inflation measure – which cuts out the really volatile stuff like energy prices – came in at just 1.7%.
So while I have a lot of sympathy for those who feel that governments like to systematically understate inflation (they do), the current trend shows that inflation is not rising particularly quickly. And the important thing is that it is rising more slowly than wages.
That’s good, because if wages rise in “real” terms, then it becomes easier for us all to service and pay down our debts. And while consumer debt isn’t the biggest issue in the global economy right now, it’s still better to be in a position where the amount of slack for consumers is growing rather than tightening.
On the same day, we got the latest official data on house prices. This was actually a little stronger than expected. House prices UK-wide rose by 0.8% in July, but this perked up to 1.3% in August.
The Office for National Statistics data is often revised, but as Pantheon Economics notes, there might be reasons for the housing market “to regain some poise”. Mortgage rates have been falling – the average five-year fix (assuming 25% equity or deposit) came in at 1.8% in September, from 1.92% in August.
I also wonder if overseas buyers are starting to think that there’s not much point in waiting for any further fall in the pound or in London property. The FT notes this morning that third quarter sales in the most exclusive bits of London rose by 14% year on year.
There are still plenty of factors mitigating against a rampant return to growth in house prices. The amateur landlord market isn’t going to recover any time soon. While mortgage rates might have fallen a bit, I’m hoping that Britain can avoid negative interest rates.
Frankly, I’d prefer it if we continued to see gentle declines in house prices. It would be healthier for the economy overall. But let’s see what happens.
Who knows? Things might not be absolutely awful for the UK
Finally, this morning, we got the retail sales data for September. It was nothing to get over-excited about, but it was a bit better than analysts had predicted. Annual sales growth came in at 3.1%, compared to 2.6% in August.
That’s a particularly decent outcome compared to the gloom in surveys of retailers. The risk with surveys is that shopkeepers are rarely keen to look on the bright side, and right now there are many, many excuses for them to grab hold of, when it comes to talking down prospects.
Of course, it’s no surprise – if mortgage rates are falling and wages are rising in real terms – that consumers are still happy enough to spend money.
The good news is that it means that – for all the fears about slowing growth – the UK is not likely to end up in recession in the near future.
What happens if we get a Brexit deal? Or at least some clarity on what comes next? Who knows – maybe things will end up being better than anyone currently expects. That suggests that there might be some opportunities out there.
If you don’t already subscribe to MoneyWeek, you can catch up on the opportunities we’ve already highlighted with our free Brexit report. And there’ll be plenty more in future issues. Get your free report – and your first 12 issues for £12 – right here.