The Economics Story: … Latest & forthcoming local economic news

Fortnightly insight into the current state of the economy and how it relates to Dorset by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.

See: www.strategiceconomics.co.uk

The recovery continues to build some momentum. The latest survey data is quite positive for Dorset and its environs.

For example, the purchasing managers’ indices for October were good for output and employment (any reading above 50 implies expansion). The SW and SE output series reached 61.7 and 61.9 respectively, only lower than London and the East Midlands, with new orders increasing at a rapid pace. These output balances are now about as good as they were before the downturn started over five years ago. The equivalent employment readings were 56.2 and 56.3 respectively – only lower than in London. The former figure for SW England was the highest it has been since September 2007. Moreover, it has now been increasing since April.

Dorset businesses are benefiting from the greater optimism, as reflected in this and other surveys that we have seen since the late spring. Household confidence is lagging a bit, with most real incomes still falling far behind the rest of the recovery. Still, local claimant count rates are dropping (see table for the latest Dorset figures and its neighbours) and compare favourably with the UK average of 3.1%. Some of the declines this year reflect the tightening of job seekers’ allowance regulations but there will be a real impact too as the recovery gets going.

Claimant Count Levels & Rates (No. and %, October 2013)

Source: ONS

The Bank of England has just (13th November) increased its real GDP growth estimates for 2013 and 2014, to 1.6% and 2.8% respectively. The Governor states that a recovery has “taken hold” but “a return to growth is not yet a return to normality.” He is concerned that the upturn is consumption (including housing) rather than investment led. The latter needs more confidence, more finance and more overseas (export) demand. Meanwhile, he reasserts that the MPC will not consider an interest rate hike until “jobs, incomes and spending are recovering at a sustainable pace” – although he does now believe the 7% unemployment ‘target’ will be reached sooner. The Bank’s task is now “to secure” the recovery. I just hope it is not taking a risk with future inflation and financial stability. Hopefully, the new FPC is on top of the latter.

The next known economic milestones will be the Chancellor’s Autumn Statement on 5th December, (and the revised OBR’s forecasts that are released with it) and the latest regional and local GVA data released on 11th December.  The latter will be historical but are important for setting a base for absolute and relative measures of overall economic performance.  The former is important for setting the fiscal context for the recovery ahead.  Perhaps, then, we can start to assess whether a sustainable recovery is likely and whether it will come because of, or in spite of, the policy environment.

Professor Nigel Jump, 13th November 2013