UK households are getting a real boost at last. Wages are growing steadily whilst inflation is moderating, boosting real incomes. There are jobs aplenty as employment reached another record high. But in time honoured fashion consumers appear to have spent the gains already, retail sales jumped up in March.
Holding up… probably a bit of an understatement when it comes to the UK labour market. Compared to last year there are 457k more people in employment in the UK. That’s more than the number of people employed in Leeds. Full-time employment is up 2% on a year ago. If that doesn’t sound like much it’s twice the pace seen the 2000 – 2008 period. The unemployment rate remained at 3.9% (4.1% for men and 3.8% for women), still the lowest since February 1975, which was so long ago it was two months prior to Bill Gates and Paul Allen forming some kind of software company.
Supportive. Total pay growth was unchanged at 3.5%y/y in the 3 months to February, the same pace it has been since last autumn. But thanks to falling inflation it’s inching higher in real terms, now over 1.5%y/y. That’s the highest pace since the middle of 2016, lending solid support to consumer spending. Recently private sector wage growth has been ticking along at c3.5%, the strongest pace since mid-2015. Meanwhile, in the public sector it’s just under 3%, the highest since 2012.
Below target. UK consumer prices were unchanged at 1.9% y-o-y in March, slightly shy of the consensus estimate of 2.0%. As a result, CPI averaged 1.9% in Q1, just below the BoE 2% inflation target. February’s downward surprise was due to an unexpected slump in recreational goods prices and lower than expected food prices. Even core inflation (excluding volatile components) was steady at 1.8% in the year to February. However, this may prove temporary due to the increased cap for utility prices, increased oil prices and building wage pressures amid a continued tighter labour market.
Shop ‘til you drop. UK shoppers reached into their wallets, buying a staggering 6.7% more goods in March than the same month in 2018. Admittedly, the comparison is exaggerated by the dampening effect of the cold weather last year. Still, retail sales have now increased strongly for three consecutive months and, for the whole of Q1 2019, were a healthy 5% higher than Q1 2018. Non-store sales, £4 in £5 of which now take place online, provided the biggest contribution to growth. Department store sales fell 0.3% in Q1 compared to Q1 2018, sales in high-street department stores slumped by 1.8%.
Fall before the spring. UK house prices in February grew only 0.6%y/y, the slowest in the last six years. Lower residential prices in London and the South East more than offset higher house prices in Wales and West England. London house prices fell by 4% y/y in February, the sharpest decline since end of the global financial crisis. South East prices fell for the first time since 2011. With prolonged Brexit uncertainty and a stagnant buy-to-let sector, the housing market looks set to remain in the doldrums near-term.
Reminder to pay your rent. Private rents are on the rise with growth in average rental payments strengthening to 1.2% in the year to March, up from a low of 0.9% in November last year. Be particularly nice to your landlord if you happen to live in the East Midlands, rents there are rising at 2.3%. But you can probably strike a harder bargain at both ends of England. Rents in London and the North East are rising at 0.5% and 0.3% respectively. That said, the trajectories differ. The North East has seen rental growth at subdued levels (
Mixed fortunes. Private non-financial corporations’ (PNFCs) net rate of return was a decent 12.2% in Q4 2018 albiet a tad lower than the revised estimate of 12.4% for the three months to September last year. The breakdown was mixed. On the one hand, the net rate of return for manufacturing companies fell to 14.3% in September to December last year, down 0.9% from the previous quarter’s net rate of return of 15.2%. On the other hand, companies in the service sector generated a net rate of return of 17.8% in Q4 2018 compared to 17.1% in Q3 2018. The overall message is that the profitability of UK companies remains healthy.
Experimental. The pace of life is accelerating and to keep up the statistics, providers have turned to new data sources. Last week the ONS published its first experimental release of faster indicators about economic activity. Currently it includes data on VAT returns and road traffic (counts and speed). The first could be used as a proxy for the level of economic activity and the second as an indicator for international trade, although we are advised that these are not forecasts and should not be used as such. These indicators are available up to one month in advance of official estimates of GDP. We should be cautious with interpreting these data as there are still methodological issues which need to be ironed out.
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