The UK economy; Where are we now?

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.