Economy in brief: November 2023

Bank predicts flatlining economy amidst sticky inflation

Although we were relieved that rates were held in the November MPC meeting, there was otherwise little optimism from the Bank of England. The Bank expects GDP will be flat over the rest of 2023 and all of 2024 (0% – well below average consensus expectations for 0.5%) – before growing at only a feeble rate in both 2025 (0.3%) and 2026 (0.8%). Despite weaker growth expected than previously predicted, inflation was revised higher, with the Bank noting upside risks to energy prices following events in the Middle East. The latest forward guidance from the MPC was expanded to include the line “monetary policy was likely to need to be restrictive for an extended period of time”. This is a more explicit signal that rates will remain higher for longer (the previous guidance stated that “monetary policy would need to be sufficiently restrictive for sufficiently long…”). Meanwhile three members voted for another rate rise, and the Governor was keen in the press conference to stress the potential for rates rising further, showing that the MPC on balance remain very much in tightening mode

What’s happening in the labour market?

The ONS have received a lot of flack recently over the quality of statistics: first on GDP, and now the labour market. As survey practitioners ourselves, we do sympathise with the ONS’s current predicament with the Labour Force Survey. The sample response rate for the Labour Force Survey has declined from 47.9% (79k responses) in summer 2013 to 14.6% (37k responses) in summer 2023. Response rates fell sharply during covid as the ONS were forced to switch from face-to-face interviews to phone calls (they’ve just made the decision to re-start face-to-face interviews).The risk is that the decline in the sample size reduces the extent to which the data is fully capturing the characteristics of the population. For example, non-UK nationals and renters are not responding as much as inactive older workers, who perhaps have more time on their hands for chatting to statisticians. These issues present particular challenges to the Bank’s assessment of economic conditions which feed its interest rate decisions. They conclude that employment is somewhat lower and wage growth weaker than current ONS estimates, and they assess that private sector earnings growth will drop to 6% next Spring and 5% by the end of next year – rates consistent with the CBI’s survey-based indicators.

The big issues ahead of Autumn Statement

What’s notable from recent discussions with members is the commonality of issues being raised. The key impediments to growth have crystallised in: the planning system and its impact on infrastructure delivery (energy and transport); the stability of the policy environment and how the system needs to support growth (particularly via full expensing – which the government seems to be warming towards); reform to the apprenticeship levy to better support skills; and the rising cost of finance. Make sure you’re registered to attend the CBI’s general election countdown conference on 20 November, where we’ll be joined by the Shadow Secretary of State for Business and Trade Johnny Reynolds.