Pessimism over economy grows as UK household finance outlook worsens
The outlook for UK household finances has worsened. With the public tired of austerity, can we afford Brexit?
In another report that the UK economy is slowing down, a report by IHS Markit showed the outlook for British households’ finance has worsened in June. Key points from the report show the 2017 trend for deteriorating household finances continued in June whilst expectations for the next 12 months are also pessimistic. The measure for how households feel about their personal finances fell to 45.8 in June from 47.1 in May. IHS Markit noted that this is one of the lowest readings seen since the end of 2013. The report also added “worries about the financial outlook were driven by people working in the public sector”. Could the 1% cap on pay rises as inflation hits 2.9% be a factor in that? It certainly looks likely.
In comments about the report, IHS Markit senior economist Tim Moore said “June’s survey reveals that UK household finances remain under intense pressure from rising living costs”. Moore added that although the squeeze had “moderated slightly” compared to May, “worries about the outlook have deepened”.
The report also showed job security had fallen, which Moore suggests shows a “more fragile confidence in terms of the wider economic outlook”.
Last week, ONS reports showed inflation at a four-year high, real wages (after adjusted for inflation) saw its biggest decline in three years and
retail sales growth is also at its lowest rate in four years. Resilience following the EU referendum seems to have faded and the UK is now at the bottom of the economic growth league table of G7 countries in the first quarter of 2017.
As the Independent reports, for the same period, the UK also had the lowest GDP growth rate amongst EU countries. Even Greece’s economy is expanding at a higher rate! You can see more on GDP growth rate by EU member state at ec.europa.eu.
Can Britain afford to end austerity with Brexit?
At a time when there is increasing demand for more investment in public services, a slowed down economy can’t be welcome. As we reported last week, Labour’s gains in the election based on a campaign of ending austerity showed the public have had their fill of cuts to public services. The Grenfell tower tragedy only re-enforces this. But a Brexit which introduces trade barriers with our biggest trading partner will only make ending austerity difficult.
The Financial Times reports the chancellor Philip Hammond is due to deliver his postponed speech at Mansion House tomorrow. He’s expected to show his support for a longer transition period with an “ultimate goal” of taking the UK out of the single market and customs union. It’ll be less of a ‘cliff edge’ and more of a ‘slope’. As Schona Jolly QC tweets, a “slope” still leads us down to the same point… Just more slowly.
— Schona Jolly QC (@WomaninHavana) 18 June 2017
The chancellor is also expected to show the government has heard the anti-austerity message. But as Gavin Davies notes in his blog for the Financial Times: “Brexit and austerity policies are clearly linked: the harder – or more chaotic – the Brexit, the higher will be the budget deficit”. Davies adds that the government cannot have the hard Brexit it still seems to be pushing for as well as relaxing austerity.
He’s not alone in his thinking. William Keegan writes in the Guardian saying “the terrible thing about the prospect of Brexit is that our underlying economic situation is already bad enough, and the Brexit decision, if not reversed, is guaranteed to make things a lot worse”. And bolstered by an election outcome that has not given Theresa May a mandate for a hard Brexit (or anything else for that matter), business leaders have been encouraged to call for a Brexit strategy rethink with the single market and customs union back on the table.
When the IFS published its green budget earlier in the year, it said that Brexit would mean higher taxes, extended austerity and a bigger budget deficit. Easing one of these areas will undoubtable impact the others. Taking Brexit and the risk of reduced trade off the table would change things.
As formal Brexit talks begin, the least we could have from the government is the truth about the challenges ahead.