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Glimmers of economic hope, the budget and what it all means

The Economist is only one of a number of leading commentators writing about a ‘glimmer of hope’ for the world and the UK economy in recent weeks and whilst the messages are still mixed, there are some grounds for cautious optimism that it is not just the decent spring weather making everyone more positive about the future.

David Miles, chief economist at Morgan Stanley and newly appointed to the Bank of England monetary policy committee, has said in a newspaper interview that ‘the worst of the recession may well be behind us’ and Ernst and Young have reported that ‘the economy is no longer in free fall as markets stabilise and credit conditions ease’. UK mortgage lending has seen an upturn, driving a 40% increase in house purchases in March with many lenders reporting fatter pipelines and the Royal Institute of Chartered Surveyors seeing increased activity from potential buyers for the fifth consecutive month. Stock markets at home and abroad show signs of life as investors seem to have called the market at or close to the bottom.

Against all this, however, is the realisation of just how much ground we have to recover as illustrated by the Budget’s reported £175 billion UK debt. House values are still low – 73% of estate agents report that prices continue to fall – the stock market indicators are not yet strong enough to be called a recovery rather than the bounce of a dead cat and all of the positive indicators have yet to turn into increased business in any other than a few sectors such as tourism and manufacturing which are directly benefiting from the poor state of the pound. What the budget did for all this was mostly political with all of the economic dice being rolled in the last few months, but some negative measures remain as threats to recovery and make the ‘budget for jobs’ tag more than a little hard to swallow.

Unemployment has risen to 2.1 million or 6.7% of the workforce but the real concern lies in the job vacancies figure which at 462,000 is the lowest since records began in 2001. Private sector workers saw wages fall by .5% in the three months to February in response to an RPI of 0% and with the budget promising a squeeze on public sector expenditure, job losses there are an inevitable future fuel to the flames of unemployment. The future increase in National Insurance contributions has not been removed, nor is it likely to be given the state of the UK’s borrowing and this, coupled with the future effects on employment of the Agency Workers Directive and the Equality Bill is not likely to be positive. So there are likely to be more candidates out there for employers and a downward pressure on salaries – recruiting good people is likely to become easier as long as we have the work to give them.