Bailey behind the curve again

UK household incomes have suffered the longest fall on record, as hopes of a roaring 20s rebound look increasingly farfetched.

The latest dispiriting batch of data from the ONS shows the UK economy grew by a sluggish 0.8 per cent between January and March, underscoring the precarious state of the post-Covid recovery.

The figures also revealed that disposable incomes, which had been expected to rise, slumped by 0.2 per cent in real terms, a record fourth consecutive quarter of contraction. It marks the longest-ever squeeze on household incomes – and the fact that much of this occurred before the Ukraine war suggests worse is to come.

New trade figures are also worrying. The UK’s balance of payments (BoP) deficit – a measure of how much the country relies on money from abroad – was 8.3 per cent of GDP in the first quarter of 2022, compared to an average of 2.6 per cent across all quarters of 2021. It’s the biggest shortfall since records began in 1955.

The fresh dose of gloom comes after Andrew Bailey, the Bank of England’s embattled governor, warned at a conference in Portugal on Wednesday that the UK economy was weakening more quickly and more severely than other advanced nations. He said it was “very clear” that Britain’s economy was at a turning point and was starting to slow.

Even so, twinkling around the economic storm clouds are a few silver linings.

For one thing, fears that the UK has fallen into recession – two consecutive quarters of negative growth – haven’t been realised. While 0.8 per cent is nothing to write home about, it’s still the joint-fastest Q1 growth rate in the G7 (tied with Canada).

Doug McWilliams, deputy chairman of the Centre for Economics and Business Research (CEBR), thinks Bailey’s downbeat comparative assessment of the UK economy is wide of the mark: “Other countries update their forecasts less regularly [than the UK]. So he is comparing old forecasts for the EU with up to date forecasts for the UK.”

McWilliams added: “There won’t be a huge amount of difference between the countries – France may be a bit better off because of its still high [GDP] share of agriculture and [reliance on] nuclear power. But the Germans are preparing to ration gas which will cut GDP. Sadly, as usual, Bailey is behind the curve.”
And on the BoP front, part of the reason for the growing deficit was a 10.4 per cent leap in real UK imports, a product of growth.

The UK economy is going through the ringer. Yet EU GDP remains 0.8 per cent below the 2019 pre-Covid level, compared to a 0.7 per cent deficit in the UK. We’re all in it together.