The Bank of England’s deputy governor does not believe the UK is heading towards a recession, despite growing signs of a slowdown in the economy.
Sir Jon Cunliffe, a member of the Bank’s financial and monetary policy committees, was speaking on a visit to Newcastle where he met a number of North East businesses across a range of sectors.
Sir Jon said there was a “positive and constructive” message from businesses in the region, though people had concerns around Brexit and the state of the global economy.
He said there were particular concerns that Brexit was holding up investment decisions across a wide range of businesses, which had become a bigger issue than on his last visit to the region two years ago.
Analysts have predicted that the UK economy could contract in the second quarter of 2019, coming after surveys of the construction, manufacturing and services sectors at the start of July pointed to a slowdown in economic activity.
But Sir Jon said a number of factors around Brexit deadlines - first in March, then April, and now moved back to October - had increased stockpiling and made it hard to accurately analyse the state of the economy.
He said: “I haven’t picked up a strong sense that the economy is contracting and people are seeing big drops in demand.
“The economy is really difficult to read at the moment on monthly and quarterly figures. We had a weak end to 2018 and a strong beginning to 2019 but the first quarter of 2019 was strong primarily because of stockbuilding in advance of Brexit and people taking on warehousing space.
“It looks likely that the second quarter will be weak but a lot of that is the unwind of the stockbuilding in the first quarter. You also had car manufacturers taking their summer shutdown in the spring because they thought it would be in the aftermath of Brexit.
“With Q1 and the second quarter of this year, you won’t get a very accurate read on the underlying nature of the economy. There is a decision point coming up on October 31 and we don’t know whether we’ll leave, or stay, or whether there’ll be an extension but we could see that stockpiling cycle build up again.”
Referring to conversations he had had with businesses in the North East, he added: “I didn’t get from contacts here that the economy is going into recession, or that we’re seeing activity drop.
“It’s an unusual period and we won’t get that accurate a read on what’s happening under all of this until we’re through it. I don’t know when we’ll be through it because we could go into another series of rolling cliff edges after October, but there is some sense of slowing, some sense that the world economy is having an effect. But it’s not a story of a recession and sharp drops in demand.”
Sir Jon’s visit came on the day that monthly unemployment figures showed employment levels remaining near record highs in the UK, with higher numbers of working women contributing to the strong labour market.
But there was also a warning that the UK’s jobs market is in danger of stagnating, with some commentators warning that uncertainty in the British economy caused by the Brexit delay was weighing on hiring.
In the North East, unemployment fell slightly to 5.6% but remains the highest in the country, with the North East England Chamber of Commerce pointing to a “worrying gap growing between our region and the rest of the country”.
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