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
There have been some better economic signs for Dorset recently. In terms of activity and inflation, the spring has been better than the winter and we are beginning to see improvements in the ‘year-ago’ trends. There are still major problems – debt, incomes and trade deficits – but, for the first time for several years, it seems possible that the official forecasts are going to prove too pessimistic rather than too optimistic.
The evidence for this shift comes from some of the official data on GDP, prices and their components. It also comes from a range of recent business surveys covering current output and orders and future intentions on investment and hiring.
For example, whilst the latest consumer price inflation rate is still above target at 2.4%, it is falling and the producer price rate is down to 1.1%. Mr Carney, the new Bank of England Governor, known to be a policy activist, takes over in July. Hopefully, he will be able (though perhaps not inclined) to start the monetary adjustment process back towards ‘normal’ without as much delay.
Meanwhile, the latest production data showed a small increase in April. This series has been broadly flat for about eight months and is still about 5.5% lower than its spring 2007 peak. Within manufacturing, performance remains very mixed. Generally, capital and durable goods makers continue to do better than makers of consumables. But, at least the overall decline has stopped.
For Dorset, the best recent signal comes from the SW purchasing manager’s index for May. Provided by Markit and sponsored by Lloyds TSB, this survey is a useful forward looking indicator of output, orders and employment across the country. Its latest signs are much better.
In May, business activity increased at the fastest rate for the last year in the South West with the index at 53.4 – (anything over 50 implies growth). New client demand was up in the region’s manufacturing plants and the private economy as a whole showed growth at a “solid pace.” This increase in output fuelled some job creation, with the employment index at 52.0 and backlogs falling. In the South East, the equivalent output measure was 54.5 and the employment index was 50.3
Compared with other parts of the country, in May, SW England ranked seventh of nine English regions on output but joint second on employment. SE England ranked fourth and sixth respectively. The key message for Dorset is that it should benefit from any improvement across Southern England that is maintained through the summer.
There is light in the tunnel but we will probably have to negotiate a few more bends before the end of the tunnel comes into sight. Also, there is a risk of further shocks. Nevertheless, the current outlook, whilst hardly stellar, seems more positive than it has for the last eighteen months.
Professor Nigel Jump, 17th June 2013
