The employment rate has hit a record high, which in itself is great news. However, the rise in employment hasn’t led to a rise in real wages.
In the chart below, the left axis shows the employment rate, and the right axis shows real average weekly earnings.
The employment rate has been climbing for the past six years or so now. We’d usually expect wages to climb alongside this. However, real wages fell from 2008 to 2014. Despite an initial recovery, wages began to stagnate and eventually fall again.
In the chart, we can clearly see that employment is now higher than it was back in January 2008. Real wages, however, have still not recovered to 2008 levels.
While more people in employment is good, we have to start looking at the quality and pay of these jobs.
Talk of inflation levelling off was a bit premature
Last month, it looked like the heady rise of inflation might be starting to level off.
However, this didn’t last long; August has seen another rise. After falling to 2.6 per cent in July, CPI has returned to its recent peak of 2.9 per cent.
The slight recovery of the savings ratio
Last quarter, the savings ratio hit a record low.
Despite being revised upwards, the Q1 2017 figure remains at a record low. This quarter has shown some recovery (from 4.0% up to 5.9%), but this still remains comparatively low.
GDP growth is slowing
GDP growth has slowed down. In Q2 2017, the economy has grown 1.5% compared with the same quarter a year ago. This is the slowest rate since Q1 2013.
The service sector is driving output, but it’s slowing down
The service sector is currently almost entirely driving quarterly GDP growth, and it was doing so throughout 2016 too.
However, even the contribution of services slowed during the first two quarters of 2017. Services contributed 0.1 percentage points in Q1 2017, and 0.3 percentage points in Q2. The ONS has noted that this is the lowest growth of the sector in the first half of a year since 2011.
Despite slowing down, services still contributed positively to GDP growth in Q2 2017. Manufacturing and construction, however, were both flat – both contributing 0.0 per cent to quarterly growth.
Demand is slowing too
Demand has slowed down in the first two quarters of 2017. Household spending, which was the main contributor to demand throughout 2016, has fallen significantly in the first two quarters of 2017. Business investment, on the other hand, has been pretty much flat for a while now.
Government expenditure has overtaken household spending as the biggest driver of quarterly growth.
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