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Economic Overview – May 2019
Interest Rates and Inflation
With the continuing impasse of Brexit, forecasting when interest rates may change (either upwards or downwards) is extremely difficult. Governor, Mark Carney, originally created a notional link between the UK unemployment rate and BoE base rate – in a pledge to keep rates lower for longer, Carney said rates would not rise until UK unemployment fell below 7%. This threshold was hit so Carney replaced it with 18 economic indicators. The reality is that interest rates are unlikely to change in the short term, perhaps into 2020.
Allied to the above, UK inflation remained steady at 1.9% in March and below market expectations of 2%, with current forecasts suggesting a level of around 2% to the end of 2019.
The UK economy grew by 0.5% in Q1 2019, accelerating from a 0.2% expansion in the previous period. Private consumption, government spending and gross capital formation contributed positively, whilst net trade contributed negatively to GDP growth.
External evidence points towards continued weakness in consumer demand as Brexit uncertainty continues. Government expenditure increased by 1.4% boosted by spending on health, general public services and economic affairs.
The UK trade deficit widened to £17.51 billion (the widest deficit in over 50 years) – exports were flat whilst import volumes increased by 6.8%.
The UK unemployment rate stood at 3.9% in the 3 months to February 2019, its lowest level since January 1975. Employment continued to increase at a solid pace despite Brexit uncertainty, and total pay growth was at the joint highest rate since mid-2008 at 3.5%.
The Halifax House Price Index increased 5% year on year in the 3 months to April 2019, following a 2.6% increase in the previous period. Over the decade, annual house price growth has seen the average price increase by £81,956, or an average of 4.3% each year. The last 12 months reflect an increasing level of activity following post Brexit vote ‘blues’.