The spectre of a global "jobless recovery" was conjured up yesterday by the Organisation for Economic Cooperation and Development, which predicted that "the economic recovery now spreading across OECD countries is still too timid to halt the continuing rise in unemployment".
The warning came as the latest evidence on the supply of credit to the British economy showed little sign of radical improvements. The Bank of England's Trends In Lending Report confirmed that British consumers were still paying off their credit card and other consumer debts, while lending to businesses fell across all the main sectors of the economy in the third quarter of the year. The OECD's latest Economic Outlook also said Britain's public finances were weak and required "concrete" plans to bring the deficit under control.
The overhang of debt around the developed world, said the OECD, is the major factor holding back a more vigorous recovery and the creation of thousands more new jobs. Pressure on public finances will also dampen public-sector employment growth in the the next few years. The OECD expects the jobless rate to peak in the first half of 2010 in America, but it may not be until 2011 that unemployment begins to fall in the eurozone area.
The report says the recovery is tepid because economic activity is being held back by families and businesses repairing their finances and reducing their debts. China, the OECD predicts, will lead the global recovery, helped by its limited direct exposure to the financial crisis and by a massive stimulus package. The US, the world's largest economy, is expected to grow by 2.5 per cent in 2010 and a further 2.8 per cent in 2011.
The OECD forecasts that the UK's growth will be 1.2 per cent this year and 2.2 per cent in 2010, "supported by improving financial conditions, an expansionary monetary policy and stronger international growth". But it adds: "The weak fiscal position makes further consolidation necessary; an announcement of concrete and comprehensive consolidation plans upfront would enhance macro- economic stability. Strengthening financial regulation and supervision would also support stability and hinder a build-up of new imbalances at historically low interest rates."
The Bank of England's review of bank lending suggests that subdued demand for funds from companies is becoming a more significant factor, rather than the usual complaint that the banks are refusing funds to companies. The Bank reported: "Overall, demand for new bank lending was expected by the major UK lenders to remain subdued during the remainder of the year. The outlook for 2010 would depend on the prospects for working capital and mergers and acquisitions activity in particular. On the supply side, the major UK lenders noted signs of increasing competition."
Nor is the mortgage market much livelier. The Council of Mortgage Lenders said yesterday that gross mortgage lending in October was an estimated £13.5bn – 5 per cent more than the £12.9bn in September but 27 per cent lower that the £18.5bn borrowed in October 2008.
The CML said last month's jump was caused by seasonal factors. Its economist, Paul Samter said: "There has been a significant change in the type of lending taking place. House purchase activity has picked up significantly. In contrast, remortgaging has dropped to decade-low levels as many borrowers have little incentive to refinance when they move on to low reversion rates, and others find themselves unable to do so because of equity constraints."
Retail sales: Brighter news for the high street
There was cheer on the high street yesterday when the Office for National Statistics (ONS) said that retail sales had jumped by 0.4 per cent in October.
Shoppers buying early Christmas presents and those looking to avoid the reintroduction of the 17.5 per cent VAT rate in January pushed sales of non-food items by 0.6 per cent, compared to September, including a 2.1 per cent increase in clothing and footwear sales. Food sales fell by 0.1 per cent during the month.
"Very low mortgage interest payments and moderate inflation are boosting the purchasing power of a good many people, thereby giving them scope to step up their discretionary spending," said Howard Archer, the chief UK economist at IHS Global. "It may also well be the case that a large number of people are determined to splash out and really enjoy Christmas after enduring a very difficult year."
The year-on-year figures were equally encouraging, with the ONS recording the biggest annual rise in sales since May last year. Sales were up 3.4 per cent in October, against the same month in 2008, although the numbers were flattered by particularly weak trading last year.
Despite the encouraging figures, several analysts pointed to what is expected to be a tricky year for retail sales in 2010.
"The consumer faces a number of headwinds in 2010, including rising unemployment, higher taxes and larger National Insurance contributions," said Richard Hyman, a strategic retail adviser to Deloitte. "As a result of these factors, we expect retail sales to take a slight fall of 1.5 per cent next year."
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