Investment Clock insights

Economic times

Ian Kernohan

13 July 2015

The recent revisions to UK GDP remind us yet again that, despite all the media brouhaha, when a “shocking” GDP number is released, we ought to treat early estimates of this series with some scepticism. A combination of business and consumer sentiment surveys, combined with labour market data, give a more accurate feel for what is happening, and reading the runes, the UK economy appears to have quite a lot of momentum behind it at the moment, led by our old stalwart, consumer demand.

While consumer credit growth has certainly picked up, much of the explanation for strong consumption can be found in rising employment in real incomes. Despite the “cost of living crisis”, consumer sentiment in the UK, as measured by the long-standing GFK survey, has just risen to its highest level since January 2000, a time long before iPhones and Netflix.

The pick-up in nominal wage growth in recent months has clearly rung alarms bells among the more hawkish elements on the Monetary Policy Committee (MPC). In the coming months, we expect the balance of opinion on the committee to turn less dovish, as downside inflation concerns fade and economic momentum gathers pace.

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