Region resilient in the face of global turmoil

In truth, it’s a tough one to answer at the moment. The global economy continues to give some business leaders – and policymakers – reasons for concern, whether that be disappointing growth rates in overseas markets, stock market volatility, or further drops in oil and other commodity prices.

And those global events are contributing to continued extremely low inflation here in the UK, leading the Bank’s Monetary Policy Committee (MPC) to vote to keep interest rates at historically low levels when they met last week.

The Bank Rate has now been at 0.5 per cent for almost seven years. But the world looks very different from what we faced in 2009.

Then, the global economy had stalled, financial markets had plummeted and the UK banking system was in crisis. Today, whilst global growth may be sluggish and financial markets turbulent, the UK financial system is much more resilient – and the economy is growing robustly.

It’s that resilience in the face of global challenges that characterises the mood amongst many of our business contacts in Yorkshire at present. As reported in our latest Agents’ Summary of Business Conditions, growth has eased back a little in recent months, but remains solid overall, and many businesses are continuing to invest.

The services sector, in particular, has been buoyant, reflecting further growth in consumer spending, which is being helped by falling unemployment and higher spending power thanks to weak inflation, especially for goods such as food and petrol.

That picture must be balanced, however, by the fact that conditions are more challenging for many manufacturers, especially those exposed to global markets or in sectors such as oil and gas and steel.

The stories we pick up play an important part in informing the Bank of England’s policymakers about what is going on in the economy.

For example, despite near record numbers of people being in work across the UK including here in Yorkshire, we have not seen wages (as measured by the Labour Force Survey) rise as strongly as expected.

It could be that the current low rate of inflation is moderating pay rises, although other factors – such as relatively weak productivity growth and lower levels of ‘churn’ in the jobs market than pre-crisis – may also be a factor.

Our business contacts can help us weigh these – and other – drivers of trends in pay settlements.

In gathering our evidence we talk to a diverse range of businesses. Each month we meet with firms from all sectors – both traditional and emerging sectors – but also a representative mix of both those selling into the UK and those exporting, both large and small as well as a good geographical spread from Grimsby to Skipton, from Sheffield to Northallerton.

Together with our colleagues across the UK we ensure that our policymakers get a well-rounded view of the UK economy. The MPC is targeted to help deliver inflation, measured by the Consumer Prices Index, of 2 per cent.

Much of the current weakness (CPI is 0.2 per cent) reflects the effects of low energy and imported goods prices, which will wane over time. So inflation is expected to pick up over the next two years as domestic cost pressures, notably wages, grow, returning inflation to target and then rising a little above it.

For that to happen, it’s more likely than not that Bank Rate will need to increase over the next three years. But with various headwinds weighing on the economy, when that happens, it is expected to rise only gradually and to a lower level than in recent times. We live and work in one of the most open economies in the world, so the recent difficulties facing parts of the global economy inevitably affect our prospects. But, with record high employment, businesses continuing to invest, and a financial system that has been tested to withstand severe shocks, the United Kingdom today is the fortunate possessor of a resilient economy in an uncertain world.