George Osborne hailed the strength of the British economy at the weekend as reports show rapid growth in wages, improved business optimism and a “sugar rush” of consumer spending.
But the good news for the chancellor was clouded by the uncertainty hanging over the global economy at the annual meeting of the International Monetary Fund, forcing him to acknowledge that the future is likely to be more difficult.
Britain’s economy is already thought to have slowed over the summer and is expected to struggle to achieve the rates of growth seen this spring.
The most pleasing news for the chancellor has been the rise in wages, with private-sector pay growth running at 3.4 per cent. Research from the Resolution Foundation on Monday suggests that after inflation, pay is rising at its fastest pace in 15 years.
The rise was partly just the result of cheap oil pushing down inflation, but also because of an increase in people changing jobs and moving into better positions.
Laura Gardiner, senior policy analyst at the foundation, said workers were “enjoying a much-needed mini-pay surge after a painful six-year squeeze”, and that real increases in wages were likely to have risen further in the labour market figures to be published on Wednesday.
The foundation added: “Higher paid managerial roles have made up a growing share of the workforce over the past 12 months, while the share of lower-paying customer service and care roles has fallen.”
On the sidelines of the IMF meetings in Lima, Mr Osborne seized on the figures. “The strong growth is being felt by families in the form of wages and a joint record high employment rate.”
The chancellor was in ebullient mood after the Conservative party conference last week, confounding predictions from the spring that he would not be at these IMF meetings.
Critics Olivier Blanchard and Jonathan Portes have both left their positions as IMF chief economist and director of the National Institute of Economic and Social Research respectively.
Speaking of revisions to UK economic statistics, Mr Osborne said: “We now know the UK’s recovery since 2010 has been exactly in line with that of the US — 11.8 per cent since the year I became chancellor — that of course is very different from the picture painted by those who criticised UK policies during that period, not all of them are in post any more.”
He added with sarcasm: “I was also very sorry to see Jonathan Portes leave.”
The good signs on pay are matched by better news on business confidence after a summer of apprehension in the corporate sector.
A BDO index of the main business surveys and the Bank of England’s regional agents’ reports has shown its first uptick since the spring, although it remains significantly lower than a year ago.
The latest EY Item Club quarterly forecast, published on Monday, suggests that the UK’s rate of growth would slow to 2.5 per cent this year from 2.9 per cent in 2014. It will slow further next year, EY believes, especially as the cuts to tax credits hit incomes of working poorer families in April.
Peter Spencer, chief economic adviser to the EY Item Club, said: “UK consumers should continue to make hay on the back of low inflation until the winter. But as prices start to pick up and the Budget squeeze begins to take effect in April next year, consumers will feel the effects in their pockets and spending growth will inevitably slow.”
Despite his jaunty mood, Mr Osborne agreed with the assessment of a slowdown in growth next year, which was also reflected in IMF forecasts and those of the Office for Budget Responsibility.
“I am very alert to the risks to the UK. We have a large budget deficit still, which needs clearing; our productivity performance is not nearly as strong as it needs to be; we don’t export enough; our record of building infrastructure is not good enough.”