Mixed signals on the economy with some grounds for optimism

News Letter editorial
News Letter editorial

The economy at the moment is in a strange place, both in Northern Ireland and the UK as a whole.

By some indicators it is doing very well.

Unemployment is low on both sides of the Irish Sea. The stock market is buoyant and house prices have risen significantly from the lows that were reached about five years ago.

But UK GDP growth in the first quarter of this year was a disappointing 0.1%, and behind that of the eurozone (for a period of years the British economy was growing more steadily than that of most of the rest of the EU). There are also fears of another global downturn.

Ultra low interest rates, which were kept down last week, have led to asset price inflation (and suggest that things such as high house prices can be attributed to cheap borrowing rather than sound economic fundamentals).

One of the most problematic areas for the economy is the high street, which is under significant pressure from internet sales. New data shows that high street spending saw its biggest annual fall for six years in April.

Visa UK Consumer Spending Index found that face-to-face spending on the high street fell by 5.4% year-on-year. Even online spending dipped 0.1%.

There have been a series of store closures in recent months.

In Northern Ireland, business activity rose last month, but only slightly from a 17-month low in March.

In these sectors, the Bank of England decision not to press ahead with mooted interest rate rises last week will have been welcomed. But the ultra low rates are causing their own problems, and are punishing responsible people who are debt averse and who save diligently. At some point in the near future, Britain needs to wean itself off them.

Meanwhile, there is in all the recent data some good news.

The Ulster Bank Northern Ireland PMI found that there has been a surge in business optimism for the year ahead.