MNI INTERVIEW: Consumer Boost Lead For UK Growth- ONS Fitzner
MNI (LONDON) - There are signs of a pick-up in consumer demand which could help facilitate UK growth in coming quarters until higher government spending kicks in towards the back end of fiscal year 2025/26, Grant Fitzner, chief economist at the Office for National Statistics told MNI on Thursday.
After a sluggish recovery in the first years after the Covid pandemic, the consumer-facing service sector has seen "a bit more strength" in both the latest monthly and quarterly data, Fitzner said in an interview. That has fed through into metrics like higher footfall for the retail sector, which could be a "small, but significant sign of what we could see in coming months."
Any easing of the current cloud of economic uncertainty should then see "a pickup in consumer spending and savings ratio start to fall as people dip into their savings," he said, while highlighting the ONS was not in the business of making economic predictions.
LABOUR MARKET
But a deterioration in the relatively robust labour market could still put a dampener on consumer confidence and spending.
"A weak labour market would be potentially negative for consumer sentiment, and job vacancies have declined for a 30th consecutive month, with no sign of a bottoming in sight yet," Fitzner said. But real incomes are still rising as inflation falls and eventually, that should boost consumption levels.
One concern could be a crack in the labour hoarding of the last decade or so, still seen as a factor for many companies continuing to experience difficulties hiring staff.
HOARDING
"There probably is still some labour hoarding out there, because what a significant minority of employers are still saying that they're finding it difficult to fill vacancies, and obviously the unemployment rate is still quite low," the ONS official noted. (See MNI INTERVIEW: UK Minimum Wage Hike Poses Jobs, Prices Risk)
"But what I would say is, if we get continuing weakness in the economy, then at some point, employers might decide to unwind some of that labor hoarding," he added.
"If you look at our labour productivity estimates, part of the explanation to why labour productivity has been so weak since the pandemic is employers hired a whole bunch of people and are holding on to them, even if they don't necessarily need all of those people because of the challenges they've faced filling vacancies.”
The main driver for growth ahead would be fiscal stimulus from the autumn budget, Fitzner noted, pointing to the Office for Budget Responsibility's estimate that it would add around 0.5 percentage points to growth in 2025/26. (See MNI INTERVIEW: UK Budget Ups Inflation Pressure - OBR Miles)
"If you look at the OBR breakdown, about two-thirds of it is spending and about one-third is investment. Obviously the spending channel is basically transfer payments and increases in public sector pay," Fitzner said.
With higher pensions, increased benefits, the fact that doctors and nurses are getting more money, and hopefully "that all feeds through to consumer spending" via a relatively simple channel.
But there was a substantial uplift to investment as well, "although the impact will be greater in later years," he noted.