Barry Naisbitt, Chief Economist at Santander
“The pattern of steady, but not constant, growth in the economy continued in the third quarter of the year. The first estimate of growth in overall economic activity (GDP) was 0.5 per cent, a little below the 0.7 per cent recorded in the second quarter, but much in line with the previous two years. Of course the early indicators of GDP growth are subject to revisions, but even so the pattern of activity shows a lot about the economy. Growth in the service sector remained strong, but manufacturing and construction readings were weak.
“Indeed the subject of weaker emerging markets’ performance has been something that has attracted the attention of both equity markets and monetary policymakers. In September the US Federal Reserve referred to the global uncertainties as a factor that had helped to persuade it to keep policy rates on hold during that month. In advance of the meeting, financial markets were not convinced that the Federal Reserve would act to raise policy rates, but it had become a topic of considerable debate. Rates were held again in October, but the sharp rise in US employment announced in early November has once again raised the prospect of a first US policy rate increase for almost a decade.
“With inflation just a fraction below zero in September in the UK and not expected to rise rapidly during 2016, the November Inflation Report from the Bank of England took a rather dovish tone on policy. A single member of the nine-person Monetary Policy Committee continued to vote for a rise in bank rate in the month. Of course the Monetary Policy Committee will remain ‘data dependent’ in its deliberations in the months ahead.
“The current extremely low inflation in the UK is occurring at the same time as the labour market is tightening and average earnings growth is picking up. As a result, real (ie inflation-adjusted) average earnings are now growing at their strongest for more than five years and supporting steady consumer spending growth, a fact not lost on producers, as demonstrated by the stronger activity surveys for October.
“Rising real earnings should be very supportive for consumer spending growth next year, providing a steady foundation for continued demand in the economy. Although headwinds do remain, those SMEs who are delivering to meet or exceed customers’ expectations are probably taking a positive reading from the continued economic growth that we have seen.”