Column sponsored by Investec
by Adrian Quin
Lots of good economic news of late – unemployment down, inflation down, earnings up. Clearly the recovery is gathering strength – but what sort of recovery?
It is not an export-led recovery but another consumer-led one. And we are all too aware that consumer-led recoveries tend to end badly.
The good news first – latest figures showed a 239,000 jump in employment in the three months to February lifted by an increase of 145,000 in self-employed people.
The stand-out development was earnings growth finally moving back above consumer price inflation for the first time since this briefly occurred in early 2010.
Headline earnings growth climbed to 1.9 per cent in February from 1.7 per cent in January, while consumer price inflation dipped to a 53-month low of 1.6 per cent in March from 1.7 per cent in February and 1.9 per cent in January.
Pundits suggest improving purchasing power is helpful for consumer spending and reduces the risk there will be a major build-up of debt to finance consumption.
The cost-of-living argument, the mantra of Labour, is now running thin.
Though unemployment is coming down there remains something of an overhang, so in theory inflation rises and out-of-control earnings remain a long way off.
And anyway the Bank of England seems poised to act should things hot up, albeit no-one expects an interest rate rise until into next year.
But the conundrum is are we enjoying the right sort of recovery?
The Monetary Policy Committee is anxious, saying “there remained some way to go to ensure the recovery was both balanced and sustainable”.
Indeed Britain’s goods exports slumped 1.6 per cent to £23.5 billion in February, the lowest since November 2010.
So for the moment the recovery remains over-reliant on growing domestic demand.
At some point that has to be rectified if boom is not to turn into the usual bust.
• Adrian Quin is head of the Birmingham office at Investec Wealth & Investment