Mixed economic picture across the North as output and unemployment figures fluctuate
A quarterly economic outlook report has shown that there continues to be a mixed economic picture across the North as output and unemployment figures fluctuate.
KPMG UK’s latest quarterly Economic Outlook Report states that for most UK regions, purchasing managers expect output to grow into next year. This includes the North West and Yorkshire, which recorded positive index figures above 50, of 51.8 and 52.7 respectively, for the latest regional Purchasing Mangers’ output indices.
Unemployment rates have also improved across most regions in the country. The latest figures, which cover Q3 2018, show that unemployment fell considerably over the past year in the North East, from 5.5% to 5%, and from 4.3% to 4.0% in the North West. But Yorkshire saw a uptick in the rate from 4.9% to 5.0%.
KPMG said that positive figures for those in work show that the North West and Yorkshire economies are creating opportunities, despite the economic and political uncertainty.
Chris Hearld, Northern Chairman at KPMG in the UK, said: “Like the rest of the UK, there is a mixed picture for the Northern economy as some regions respond to the current trading conditions better than others. Fundamentally, Brexit is driving a tremendous amount of uncertainty which is starting to manifest itself in a set of varied economic indicators.
“On the ground, it is encouraging to see a real determination in the business community to grow and take advantage of whatever opportunities arise. With that tenacity and ambition, and supported by a dose of caution, we should take some confidence in the North’s ability to navigate these challenges and carve out a successful future.”
KPMG main scenario for the UK economy
| 2017 | 2018 | 2019 | 2020 | |
| GDP | 1.7 | 1.3 | 1.6 | 1.5 |
| Consumer spending | 1.9 | 1.6 | 1.3 | 1.2 |
| Investment | 3.3 | 0.3 | 1.6 | 1.7 |
| Unemployment rate | 4.4 | 4.1 | 4.0 | 4.0 |
| Inflation | 2.7 | 2.5 | 2.2 | 2.1 |
| Base interest rate | 0.50 | 0.75 | 1.00 | 1.25 |
Yael Selfin, Chief Economist, KPMG UK, said: “Looking ahead to 2019, we are bracing ourselves for one of the most eventful years in Britain’s recent history. However, while Brexit is likely to dominate a large part of next year’s agenda, it is important that we don’t let it cloud our vision to other opportunities and risks around us. While tightening credit conditions globally and continued geopolitical tensions are also sure to produce some hairy moments in 2019, capitalising on new markets and products would help the UK economy to grow.
“The UK’s economic challenges go beyond Brexit, and more focus should be turned towards improving productivity and social inclusion as finding solutions for these two problems will go a long way to improving the UK’s long-term prospects.”
Selfin said that the Chancellor’s Budget in October struck a compromise between the government’s ambition of ending austerity while maintaining the fiscal discipline required to improve public finances. The Office of Budget Responsibility’s (OBR) revisions to public finance forecasts aided this move, allowing the government to ‘end austerity’ only in the very narrowest sense of the word.
Despite a recent hit to public finances, with cumulative deficit up to October surpassing the OBR’s forecast for the full fiscal year, the government is still on track to achieve the fiscal mandate.
Selfin added: “The latest data highlight the fragility of public finances. OBR’s forecasts assume the economy evolves relatively favourably. If there’s a downturn over the short term, for example due to a less favourable Brexit deal, the fiscal buffer the chancellor will have is unlikely to be big enough to allow him to meet his target while providing some necessary support to the economy.
“We expect the Bank of England to continue raising interest rates gradually if the economy evolves as expected. In the event of a significant slowdown, while it may prove more cautious in providing a monetary stimulus if productive capacity remains tight, we believe it will still act to bolster individual markets and lower rates somewhat to cushion demand.”
KPMG said that 2018 had been a turbulent one for the FTSE, which is threatening to close 2018 below 7,000. The firm said investors should not expect any easing in the high volatility seen, as “even a favourable resolution of issues like Brexit could herald a sharp realignment in share prices.” KPMG UK’s research looked at some of the key trends affecting UK stocks and what they mean for the outlook for the next 12 months.
It found that many of the companies in the FTSE 100 and 250 are large multinational businesses, which earn a majority of their revenues outside the UK. Naturally the value of sterling and exchange rates impact these companies’ earnings more than companies that derive a majority of their earnings in the domestic market.
Selfin added: “Many investors will be keeping a close eye on the impact of exchange rate volatility on UK and non-UK focused companies. However, as we have seen this year, global macro-economic instability and trade wars have knocked investor confidence across a number of sectors. Next year promises to be another rollercoaster ride for the markets, regardless of the outcome of the Brexit negotiations.”
