Labour Market Improves into 2018
Despite the elevated level of political risk, uncertain post-Brexit business climate, and poor growth in the first half of 2017, labour market conditions continue to improve. The current UK unemployment rate is the first of these improvements. With a harmonised unemployment rate of 4.3% in June (down from 4.9% a year earlier), the country is almost at full-employment (which economists define as 3%). However, it is important to highlight that inflation continues to outstrip wage growth and households' disposable incomes are falling. These factors have affected the UK’s economic growth.
Secondly, the Purchasing Managers' Index (PMI) data for the service, manufacturing and construction sectors shows that all three sectors continue to grow; albeit, headwinds in the service sector, comprising close to 80% of the British economy, are increasing.
Global Economic Outlook: Global Growth Outlook Improving into 2018
Global economic growth looks promising. Global growth for 2017 is set to grow to 2.9%, the highest level since 2011, and will improve further to 3.1% in both 2018 and 2019. Our positive view is supported by the IMF’s recent October forecast update. Furthermore, the WTO also sharply revised upwards its 2017 world trade forecasts due to a strong H1 performance. More generally, employment data is strong. Additionally, commodity prices have rebounded from their 2016 lows, improving the outlook of commodity-exporting countries. Markets also appear to have built-in expectations around the normalisation of central bank policy as quantitative easing winds down and interest rates rise.
Another positive development is the reduction of political risk, although remaining elevated, has eased to a degree since the start of 2017. Following the election of President Donald Trump, the checks and balances of the US political system have established greater policy certainty than initially predicted. In addition, although the Brexit negotiations are proving inconclusive at present, businesses continue to operate under the existing EU rules, ensuring short-term stability in Dun & Bradstreet’s forecast period.