There was positive news on the UK economy this week, with the strongest wage growth in three years and unemployment remaining at a 45-year low. The news came at the same time as a rebound in retail sales which bodes well for the coming months and adds weight to the argument that the sharp slowdown in retail sales last month was a blip.
Overseas, there was news on Monday from China that showed its economy expanding at an annualised rate of 6.2% in the second quarter - its slowest pace for 27 years. This disappointing announcement was accompanied by more positive data - industrial production was 6.3% higher in June compared to a year earlier, and retail sales rose 9.8% year-on-year compared to 8.6% in May – both above expectations. These more positive results helped soften the blow for markets. The poor GDP reading was also seen as increasing the chances of more stimulus measure from the Chinese government, which should boost economic growth even as the trade war with the US continues.
On Tuesday, the Office for National Statistics (ONS) revealed wages are growing at their fastest rate for more than 10 years. Total pay with bonuses increased by 1.4% year-on-year in the three months to May, when adjusted for inflation. Annual wage growth in weekly earnings increased to 3.4% in May, against 3.2% in April - the highest rate for nearly 11 years and well above expectations. Unemployment was unchanged at 3.8%, the lowest since 1974, as expected.
The good news was compounded on Wednesday when the ONS said inflation was unchanged in June. The consumer price index (which includes costs associated with home ownership) was 1.9% in June, unchanged from May. Stripping out housing costs, the CPI was 2%, also unchanged from May and in line with the Bank of England’s target. Low and steady inflation combined with rising wages means households are getting richer, a good sign for consumer spending and confidence.
Nevertheless, there was downbeat news on the housing market this week. According to the ONS and HM Land Registry, house prices fell to a 10-year low in London in May. Their data showed average house prices in the UK rising by 1.2% in the year to May, down from April’s growth rate of 1.5% and below analyst forecasts of around 1.3%. In London, prices growth fell by 4.4% in the year to May compared to a 1.7% decline in the year to April. It is the lowest annual growth rate for London since August 2009, when it was -7%. London has now seen 11 consecutive months of decline. The ONS said: “Over the past three years there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.” Mike Hardie, head of inflation at the ONS, added: “Annual house price growth remained slow but was once again strong in the North West and Wales. However, London experienced its biggest annual fall since August 2009.”