Industry and economic update
Posted on 17 May 2013
Inflation
Latest figures from the Office of National Statistics (ONS), published in April 2013, show that the Consumer Prices Index (CPI) grew to 2.8% in March this year, unchanged from February. In the last six months, the CPI has been relatively stable; it remained at 2.7% for four months, followed by 2.8% in the months of February and March. The ONS remarked that the contributions to the change in CPI were small in comparison with most months. The largest upward contributions to the change came from the recreation and culture sector where prices rose for audio-visual equipment, books, newspapers and stationery. Downward contributions came from motor fuels, meat and furniture and furnishings. CPIH, the new measure of consumer price inflation including owner occupiers housing costs, grew by 2.6% in the year to March 2013, again remaining unchanged from February.
Growth
According to the ONS, UK GDP in volume terms was estimated to have increased by 0.3% between Q4 2012 and Q1 2013. GDP in the first quarter of 2013 was 0.4% higher than it was in Q3 2011 indicating that economic growth has been broadly flat over the last 18 months. The main contributors to the increase in GDP last quarter, were the service industries which grew by 0.6%. A small contribution came from the production industries particularly mining and quarrying. These experienced an increase following a very weak final quarter of 2012 where output was reduced due to maintenance in the North Sea.
The upward contributions were offset by a significant fall in the construction industries of 2.5%. At the time of publication, the ONS states that it seems as though the severe cold weather, experienced by the UK during Q1 2013, has had little impact on growth. As expected there was reduced retail output in this quarter, though this was offset by increased demand for energy supplies, which increased the output of this industry significantly.
Labour market
Contrasting with the growth of Q1 this year, the rate of unemployment was up to 7.8% of the economically active population in Q1 2013, an increase of 0.1% - although still down 0.4% from a year earlier. The employment rate was down between January and March this year to 71.4%, this equates to 43,000 fewer people in work in the first quarter of this year compared to Q4 2012. Between Q1 of last year and Q1 of this year, total pay rose by 0.4% - this is the lowest growth rate since Q2 of 2009. Furthermore, regular pay rose by 0.8%, this being the lowest growth rate since the ONS began recording this figure back in 2001.
Pay settlements
Analysis of IDSpay.co.uk shows that in the three months to the end of April, the median basic pay award across the whole economy was 2.5% with the interquartile range sitting at 1.5% to 3.0%. The interquartile range widened in the three months to the end of April compared to the three months to the end of March. Looking at just the private sector, the median pay settlement remains at 2.5%, although the interquartile range narrows to 2.0% to 3.0%. With the current rate of inflation sitting at 2.8%, this means that many people are experiencing pay which falls short of inflation based on the median figure; in real terms this effectively equates to a pay cut.
Parental leave
The Government recently announced plans to shake up the current maternity leave system. As of 2015, the plans are to adopt an approach similar to that of Sweden, where a system of shared parental leave is in place. The aim of the Government’s new plans is to ‘get the UK working more flexibly’. They also address the fact that the UK’s cultural landscape is changing where today’s families no longer necessarily consist of the mother staying at home to look after the children. The new legislation will see parents having the choice of how to use 12 months of parental leave; as part of the plan, mothers will be allowed to take maternity leave in the two weeks following her baby’s birth, with her partner also being allowed to take time off too during this period. After this, parents will have free choice as to how they want to divide up the rest of the time. The only rules are that no more than 12 months can be taken in total, with no more than nine months at guaranteed pay.
The Budget 2013
The Budget was announced by the Chancellor at the end of last month. It outlines various plans for the economy for the next three years after a ‘more subdued and uneven recovery than expected.’ The Budget announces plans to increases capital spending by £3billion a year from 2015-16, which will be funded by cuts in current spending. There will be a reduction in spending in some departments of £3.2billion across the next two years, although health and school budgets will remain unaffected. It was also stated that public sector pay awards will be limited to an average increase of up to 1% in 2015-16.
In efforts to encourage more economic growth, the Government aims to make the tax system in the UK, one of the most competitive in the G20, lowering the rate of corporation tax to 20%, one of the lowest levels in this group. Businesses and charities will be entitled to £2,000 a year employment allowance to be put towards NICs bills from April next year. Finally a £5.4billion package of financial support will be put forward to address long term problems in the housing market. This will include the launch of ‘Help to Buy’, two schemes which will help people get on and advance up the property ladder.
The Budget promises to ‘build a fairer society by making the tax and welfare system fairer’, with a commitment to make the first £10,000 of earnings tax free in the next financial year. The Government estimates that by next April, 2.7 million people on low incomes will be paying no income tax at all. The Government also plans to cancel the increase in fuel duty which was planned for September this year, helping to support businesses and homes. They will also introduce a tax-free childcare scheme and a single tier State Pension alongside a £72,000 cap on social care costs to support the UK’s ageing population.
