Posted 22 February 2018 By Martin Longmore, Partner
I attended a very interesting breakfast late last week, hosted by MHA Monahans, but presented by Donna Kehoe, the South West agent for the Bank of England.
Donna’s job has two aspects to it:
- Firstly to gather intelligence from businesses of all sizes and across all sectors from her local region, and then to feed that intelligence back to the bank
- Secondly to disseminate information on the bank's current data and thinking, back to those local businesses.
The purpose of her presentation last week was in fulfilment of that second objective, and in doing so give us some insight into the Bank’s view of our current economic situation.
A few interesting observations:
- The global economic situation is continuing to improve, with most of the G7 now showing strong growth, including Europe. The situation in the UK is more mixed, though there has been a slight increase in GDP growth, from 1.5% to 1.75%.
- Greater global demand however, is a key opportunity for the UK, which has seen increasing exports as the value of sterling has fallen. UK export growth continues to be robust.
- The falling value of sterling has also had the effect of increasing the cost of imports; to an extent this is increasing the costs of UK exporters. There is some speculation that we may see an increase in domestic production at the lower end of the manufacturing cycle because UK production will become cheaper than imports.
- Inflation is expected to fall slightly however, as the effects of the increases in import prices have largely worked their way through.
- Real incomes in the UK have fallen, and this has had the effect of reducing domestic demand.
- UK firms have been holding back investment because of Brexit uncertainty. Investment intentions are creeping back up, but are still dampened by this.
- The UK housing market has seen a slight downturn nationally, but the South West is bucking this trend.
- Higher employment costs are leading firms to start thinking more about robotics and automation. There is a consistent message that recruitment is getting harder – now across all sectors and at all levels. Unemployment is now lower than it was in 1975. The position may worsen both because of lower immigration and UK demographics.
- Wage growth is predicted to increase as a result.
Donna rounded off her speech with a reminder of Mark Carney’s recent announcement that he now expects interest rates in the UK to rise further and faster than was originally envisaged. She did temper that announcement, with a reassurance that this still means that any increases are likely to be very gentle, and that the Bank will be watching very carefully to see what impact these might have.
All in all, a very interesting and informative talk! Many thanks to Donna.
To discuss this or anything else, please contact Martin Longmore on 01225 472800 or send him an email.