The UK economy; Where are we now?
The overall picture continues to
be difficult to divine and there are some contradictory indicators
out there. Most of the data tends to support the case for some kind of a
recovery but quite how rapid that recovery will be and which sector will
take the lead is still open to debate. What follows is a brief summary of
what remains a pretty confused picture.
1. The slow road to recovery
- According to former Prime Minister Sir
John Major the British economy may have passed its "darkest
moment" and an economic recovery may be under way.
- He suggested that falling
unemployment and a rising stock market indicated Britain was now on a
"slow road to recovery".
- Speaking at the weekend on the
20th anniversary of Black Wednesday - the day Britain had to pull out
of the European Exchange Rate Mechanism - he said that Britain may already
have weathered the worst of the economic storm.
- He likened the current economic situation to that of the early
1990s when Chancellor Norman Lamont predicted he could see the "green shoots" of
recovery.
- There are certainly some oddities in the figures at the moment: Why in the depths of this recession is
employment growing? Why is industrial production going up? Why has the
stock market risen?
- The former prime minister, who negotiated Britain's opt-out from
joining the euro, said he thought the eurozone crisis would lead to a two-tier Europe - with closer
integration for euro members. He
said the process could take up to 10 years and would spark a UK referendum on Britain's relationship with the
European Union.
2. Income levels to rise next year, says CEBR
- UK
households will see a rise in real income levels next year for the first time since the
onset of the financial crisis, a study suggests.
- Taking
inflation into account, incomes are
set to rise by 0.5% in 2013, according to the Centre for Economics and
Business Research (CEBR).
- But they will still drop by 0.2% this year, the group said. Households
have struggled in recent years with low
or no wage rises and relatively
high inflation.
- Many
people have seen wage freezes during the economic downturn, with inflation
rising sharply between September 2009 and September 2011 to stand at a peak of 5.2%, as measured
by the Consumer Prices Index.
- It has fallen steadily since then to 2.5%, apart from a small rise in the rate of inflation last month.
- Unemployment also rose sharply during the downturn, from 1.61 million in May 2008 to 2.59
million in July 2012.
- The
CEBR said real levels of income would start to pick up as inflation fell
further, with middle and low-income
families benefiting the most.
- Middle-income households would see incomes
rise by 1% next year, with lower-income families
seeing a rise of 1.5%. The richest households would see incomes
rise by 0.7%, the research estimated.
- This
is because of a drop in top executives' pay and bonuses and the scaling
back of some tax allowances. Similar increases would be seen across
the board in 2014 and 2015, it suggested.
- The CEBR said improvements in real income levels would have a
knock effect for struggling retailers. Over the next 12 months, it predicted retail sales volumes to rise
by 2.5%.
3. UK unemployment falls again in three months to July
- The
number of people out of work fell by 7,000 to 2.59 million in the three
months to July, compared with
the previous three month period.
- The unemployment rate was 8.1%, down 0.1% on the previous quarter.
- The number out of work for more than a year
was 904,000, the highest since 1996, official figures showed.
- But the Office for National Statistics (ONS)
also said the number of people
claiming Jobseeker's Allowance fell by 15,000 in August to 1.57 million. The drop in the number of
claimants was the largest since June 2010.
- The number of people in work increased by
236,000 to 29.6 million, the largest quarterly
rise for two years. The ONS
said the Olympic Games was likely to have been a factor behind the jump in
employment, with London accounting for 91,000 of the increase.
- The number of people in part-time work rose
by 134,000 to 8.12 million, the highest level since 1992, when these numbers began to be collected. This figure includes 1.42
million people, a record number, who would like to work full-time but are
unable to find such employment.
- With
the UK economy in a double-dip recession, a number of economists said the
jobs figures presented a puzzle. For example, "Why are we seeing GDP [gross domestic product] so weak yet
unemployment, and particularly employment growth so strong?"
asked George Buckley, an economist at Deutsche Bank.
- David
Freeman from the ONS said women were driving the recent fall in
unemployment: "The decrease in
unemployment over the last three months, is all down to women. The
number of unemployed women fell by 16,000 to 1.1 million, with the number
of men out of work rising 9,000 to 1.49 million.
- The
closely-watched category of youth unemployment saw the number of 16 to 24-year-olds who are
out of work rise by 7,000 to 1.02 million.
4. Child benefit changes
- It is one of the few non-means-tested
benefits left, but Chancellor George Osborne has announced it will be axed
for better-off parents.
- From
2013, the coalition government will withdraw
child benefit from families in which one or both parents are higher-rate
taxpayers.
- The
measure will affect people earning
more than £42,475 a year. That means people in the 40% income tax
bracket, and those whose taxable earnings are above £150,000, who
therefore pay the new 50% additional rate of income tax.
- The
proposal means that if both parents
earn less than £42,475, they will continue to receive child benefit.
But families with one main earner on, for example, £43,000, will see their
benefit stopped.
- The
Treasury says about 15% of families will lose out. In real terms, this
means 1.2 million families will be
affected, while 6.6 million will see no change to their child
benefits.
- The
Treasury says the annual child
benefit bill is about £12bn, and the
cutback will save £1bn a year.
- Child benefit is worth £20.30 every week
for a first-born child. For
each subsequent child, there is an additional weekly payment of £13.40.
The money is not taxed.
- It is available for every child in the UK
below the age of 16; child benefit is paid to the parent directly responsible
for care of the youngster.
- Those in full-time education remain
eligible until the age of 19, but the cut-off point for children
registered for work or training is 18. Child benefit is taken up by 96-97% of the eligible
population, according to HMRC.
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