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Tuesday, 12 August 2014

Mixed news

Although it may look like that, I am not constantly obsessed by the decay of the British economy and the consequential risk to society; but from day to day the news compel me to return briefly to the theme. Within the past 24 hours two sets of data again reinforce my point.

British consumers have increased their spending, and their borrowing-to-spend, through this summer. Household spending increased each month for ten months including July 2014, and in July we spent 2.4% more on ourselves than we did in July 2013. There is no reason to believe that this will stop in August or September.But the composition of the spending is worrying: turnover in restaurants was up by 9.3% in June and by 8.1% in July [compared to 2013]; while purchases of of clothes and footwear was down by 1.7%. Manufacturing in the UK was not greatly helped by the increase in spending at home, while export orders weakened; and the predominance of firms like Primark in clothing the less-affluent members of the community support imports rather than the residual industries at home.

Many of the staff in restaurants and shops are on very limited hours and basic pay, and the latest figures show that the employment opportunities that are arising in the economy are predominantly advertised on a part-time basis. Manufacturing industry posted 163% more part-time vacancies in July than in July 2013, retail 120% and construction 106%: many people are being hired, but on the most precarious basis. Zero-hours contracts [not guaranteeing any work, but tying the individual to the employer] have become more common. Investment has remained weak. Any reduction in economic optimism will result in large scale lay-offs of people who have been receiving minimal wages, so they have no savings and will immediately fall onto state support. The government's much-proclaimed strategy of 'getting people back into work' can reverse catastrophically and very quickly.

This helps to explain why the Bank of England is so cautious about even the smallest change in interest rates, which could be the trigger for a disappearance of the optimism that has been significant for the past year or so. Mr Osborne can change back from hero to villain in a twinkling of an eye.

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