More Wrong Kind of Growth


The UK economy experienced another year of modest economic performance in 2017. Despite the technological drive for change across a range of industries, political, public sector, business investment and consumer factors held back the pace of economic development.

The consensus is that there will be ‘more of the same’ in 2018, with the ‘wrong kind of growth’ persisting unless productivity accelerates. Inflation is expected to stay above target but ease back from its exchange rate highs. The risk of recession is higher than the risk of a boom but an improving world economic outlook suggests some upside to offset BREXIT uncertainties.

Even if the forecasters are correct, there should be considerable interest in major structural changes that will be negotiated or get underway this year, especially those related to future trade patterns and industrial strategy.

Against this background, local businesses are confident, operating at high capacity and continuing to face constraints from infrastructure and skills. The need for investment in competitive productivity has never been stronger.

The UK Economy


UK Annual Quarterly Monthly
Real GDP (%ch, yoy) +1.8 (’17) +1.5 (Q4) n.a.
CPI inflation (%ch, yoy) 2.7 (’17) 3.0 (Q4) 3.0 (Dec)
LFS unemployment (%) 4.9 (’16) 4.3 (Q3) 4.3 (Aug-Oct)
Trade deficit* (£bn) -40.7 (’16) -5.8 (Q3) -2.8 (Nov)
Base rate (%) 0.29 (’17) 0.41 (Q4 17) 0.5 (Jan 18)

Source: ONS   *goods and services

The UK economy (table above) ended 2017 with modest growth, high inflation and low unemployment. The trade deficit was probably shrinking a bit and interest rates were starting to edge higher, along the yield curve. There were signs of good activity in some manufacturing and export sectors but the overall mood in many industries was more sombre, with uncertainty about the future weighing on business decision making. At the same time, consumers were restrained by falling real incomes whilst net government and net trade’s contributions were unhelpful, at best.

For 2018, the questions are whether unemployment has troughed, inflation has peaked and growth can be maintained. Most forecasters suggest a slight move away from the ‘wrong kind of growth’ towards more productivity-led activity but the extent of the improvement is expected to be modest. In particular, the consensus of current forecasts is for 1.4% growth and 2.4% inflation, both slower than in 2017.


There were three key messages from the OBR in November:

  • The cyclical economy is weaker than previously thought: growth projections fell (not forecast to reach 2%p.a. over next 5 years).
  • The structural economy is weaker than previously thought: growth potential dropped to c1.4% per annum (because productivity worse).
  • The fiscal economy is weaker than previously thought: public finances in deficit until 2019/20. (Debt burden stays close to 80% of GDP.)

Essentially, the OBR is predicting more of the same over the forecast period. This can be summed up as “the wrong kind of growth” – growth not fuelled by enough investment, productivity and real earnings.   The economy is operating near to potential and there is little spare capacity. In the near term, BREXIT uncertainty dampens domestic and foreign direct investment, whilst reducing net immigration, compared with what otherwise might have occurred.

There are two broad risks to this OBR central outlook:

  • Fears about BREXIT disruption may be over-stated. New technological innovation, skills and investment may add value more quickly than anticipated. Also, a buoyant world economy could provide more of a local boost, as long as the pound remains competitive and UK trading patterns can be adjusted smoothly. Output and productivity growth may get back to 2% p.a. or more sooner than we think.
  • The forecasts are now so low, however, that the chance of a shock to confidence causing a further slowdown, even recession, cannot be ruled out. Investment and consumption may stagnate because of constrained living standards/high debt burdens, new trade barriers/corporate realignment of capacity and operations, and higher interest rates.

The future is always uncertain but the current UK outlook is particularly so.


Interest rates remain very low and are only expected to increase slowly over the next few years. Base rates probably need to get back to about 3.5% at some point (roughly equivalent to underlying nominal GDP growth), if pre – Great Recession ‘normality’ is to be restored.

As long as this is done in small, slow steps, such an adjustment need not hurt overall economic growth. There may be some pain for over-extended households and corporate debtors who have not planned properly for higher rates, but a gradual process of change to more ‘normal’ interest levels will improve resource allocation in time – a necessary condition for getting the economy working well and sustainably.

The fiscal side of stabilisation policy remains constrained by historical and projected levels and ratios of debt. Political imperatives may allow some easing of the immediate fiscal stance, but the room for manoeuvre is limited in a low productivity, low growth economy that is losing clarity about access to important international markets.

Structural reform of the public finances is warranted but may be difficult in the current febrile environment of BREXIT and minority government.

The Dorset Economy


The evidence is that the local economy lost a little momentum in the second half of 2017, reflecting the uncertainty about how BREXIT will evolve. It is unclear as to whether this is a real effect or a convenient scapegoat and some local firms are still quite sanguine. Whatever the truth, the impact is the same – more modest growth in 2018.

For example, the collapse of Carillion (15/1/18) suggests construction and public services may lose output in the near term whilst worrying statements from Airbus (FT 16/1/18) about the prospects for aerospace cast something of a cloud over local supply chains. Similarly, there have been a number of reports, notably from the CBI (FT 26/1/18), that contingency plans for “no deal” are being implemented by externally orientated businesses and this will involve a loss of UK jobs.

The latest Federation of Small Businesses Survey (FT 5/1/18) found a high number (1 in 7) of respondents planning to downsize, close or sell the business in 2018. The overall confidence index was negative for only the second time in five years – the other time was just after the BREXIT referendum day 2016. Falling profits were highlighted, as costs increased and demand, especially consumer demand, weakened.

Similarly, the most recent Chamber of Commerce Survey casts a subdued shadow over the business atmosphere. It shows waning confidence in manufacturing and services at a national level. In Dorset, the mood was steadier about current activity and prospects. Locally, in the latest quarter, sales and orders remained positive and employment and exports grew. In the year ahead, more Dorset respondents expect turnover and profitability to rise than to decline. The prospects were steady compared with the previous quarter – an outlook a bit more confident than seen in the country as a whole.

The various Purchasing Managers’ surveys continue to send mixed signals but there was a softening of activity through 2017 in the SW region, including Dorset. The December report showed business confidence about the near future resilient yet the output and employment measures, whilst still positive, were lower. Compared with a year ago, last month’s output reading was down 11% (from 58.7 to 52.2).

Meanwhile, in the year to September 2017, Dorset enjoyed virtually full employment, with most local places’ ratios below national and many below SW regional averages (see next table – SW averages 78% and 3.5% respectively).

Local Labour Indicators (Oct 2016 – Sep 2017)

Emp % Unemp % Emp % Unemp %
Bournemouth 76.4 3.8 Dorset 78.5 2.7
Poole 75.3 3.2 Somerset 74.8 4.0
Christchurch 80.7 2.3 Devon 78.3 3.0
East Dorset 80.6 2.4 Wiltshire 81.0 3.1
North Dorset 83.7 2.5 Southampton 73.3 4.9
Purbeck 85.2 2.3 Portsmouth 74.0 4.3
West Dorset 79.4 2.7 Hampshire 81.1 3.0
Weymouth & Portland 62.8 4.0 Isle of Wight 71.8 4.3

Source: ONS: employment 16-64 age groups, APS. unemployment 16+ economically active

The local labour market is tight and living costs high, making it hard to find and attract new and replacement skills as long as companies are unwilling or unable to pay higher wages. Skills acquisition and retention is a key area in need of improvement if Dorset is to move towards more sustainable, productivity-led growth.

There is also an issue about a shrinking of the ‘middle’ market, with new entrants (16-25 years old) finding it hard to enter and progress along a desired career path (see Prince’s Trust Survey released 24/1/18 – said to reveal “a staggering deterioration of young people’s confidence in themselves and in their future”).


In December, the ONS released latest numbers on the GVA breakdown for 2016 for Dorset.  Total GVA was £16.1bn in 2016 (current prices), placing the county 32nd out of the 38 LEP areas – roughly as expected given its relative size. In terms of GVA per head, taking population into account, Dorset achieved £20,900. This broad measure of productive performance showed Dorset to be below regional and national averages, ranking 24th out of the 38 LEPs.

Dorset’s index of GVA per head was 79.3 (UK average = 100) – down on the previous year. For the first time, Dorset was more than 20 percentage points (pps) below the national average, continuing a long-term downward trend.

This slippage in comparable standing is disappointing. Although it reflects a widening gap across the country (Greater London versus the rest), it also indicates a poor relative local productivity record: Dorset GVA per head dropped from just 8.7pps below the UK average in 2000 to 20.7pps below average in 2016.

This fall in the relative GVA per head index is similar to the experience of other south coast areas. Amongst the 12 “southern” LEPs listed in the next table, Dorset ranked 10th on GVA per head. Only four of twelve have seen a positive change over the last two decades.

GVA per head by LEP area, UK = 100 2016 & pps change since 1998

index change   index change
Cornwall & IoS 64.8 -0.5 Solent 91.7 -8.9
Heart of the SW 75.2 -4.7 Oxfordshire 126.6 +6.9
Dorset 79.3 -9.4 Coast to Capital 95.6 -10.5
Gloucestershire 99.1 +3.0 Bucks Thames Valley 114.3 -12.7
Swindon & Wilts 96.9 -12.2 Enterprise M3 122.3 +2.1
West of England 111.5 +4.5 Thames Valley Berks 158.4 -6.1

Source ONS.

Recent growth in Dorset GVA has been in services, with most growth in business and financial services and least in manufacturing and resources. Production has gone from 23.5% of the economy in 1998 to 18.5% in 2016. This 5% loss has shifted largely to private services (not including real estate).  Within Dorset, about two-thirds of the GVA was generated in the east Dorset conurbation – Bournemouth, Poole, Christchurch and East Dorset (next table shows details).

GVA & GVA per head within Dorset: All industries

£mn £/head GVA % share
Bournemouth 4,145 20,971 25.7
Poole 3,964 26,167 24.6
Christchurch 1,019 20,596 6.3
East Dorset 1,693 18,999 10.5
North Dorset 1,233 17,354 7.6
Purbeck 879 18,962 5.5
West Dorset 2,322 22,905 14.4
Weymouth & Portland 875 13,386 5.4

Source: ONS

The Government’s recently announced Industrial Strategy (below) aims to correct some of the imbalances and inadequacies displayed by the latest GVA statistics.

The annual GVA regional performance publication will always be one of the areas where future analysts will observe whether the Industrial Strategy is having the desired effect.

The Development Outlook


More open trade deals between customs unions/countries are intended to increase economic welfare for all partners to the agreement by reducing barriers to exchange in the markets and sectors covered by the agreement, i.e. by increasing economic efficiency, productivity and wealth.

Economic analysis shows decisively, in theory and in practice, that movement towards open (freer and fairer) trade is a net ‘good’ for all concerned. It is one of the things on which virtually all economists agree: more open trade increases competition, raises productivity and boosts living standards for trading partners as resources are re-allocated to reflect absolute and comparative advantage. Although there may be internal distribution issues, all macro parties are better off.

Historically, most trade deal activity has been based on trade in products rather than services but, increasingly, more agreements are likely to be made about the latter. It is important, however, to remember that trade deals are political as well as economic animals. Sadly, the spirit of mercantilism – the view that trade is a zero-sum game with winners (surplus generators) and losers (deficit generators) – is far from dead. In a world of “America First” and “Deutsche vorherrshaft”), Ricardian views of trade – that efficient and mutual specialisation means it is not a zero-sum game) – need to be defended.

This is what is worrying about BREXIT. For example, one of the UK’s comparative advantages is in financial services. Shifting capacity from London to Paris, because of reduced EU access freedoms/passports for the former, merely diminishes both countries’ ability to create total wealth most effectively: a potentially negative reallocation of resources.

The problem is that BREXIT does the opposite to ‘normal’ trade negotiations. For any likely eventual UK-EU terms, it leads to a constraint on trade rather than a liberalisation. Even if, in the long run, ‘freer’ trade deals are agreed with other trading blocs, it will be many years for the near-term losses to be compensated for. There are costs of losing ‘single access’ for both sides.

Also, under BREXIT, failure to set a trade deal with the EU does not mean, as it usually does, a return to the status quo. It results in a less open move to WTO rules. Countries that have a ‘better than WTO’ trade deal with the EU – e.g. Norway, Switzerland, Canada, South Korea – and those further along in the trade negotiations – over 50 in total – would have better access to EU markets than the United Kingdom after a ‘hard’ BREXIT.

Both the EU and the UK lose trade opportunities from a failure to agree favourable terms. Currently, the EU takes c40% of UK exports. The UK takes c10% of EU exports. At the margin, it is not easy for either to substitute these patterns with new markets quickly.

Finally, there are the psychological effects on supply chains – club members tend to deal more with themselves than outsiders – even at an economic cost. There are already reports that UK companies are finding it hard to get onto the list of potential suppliers in the EU after March 2019 and attracting EU ‘talent’ is getting tougher.

There are always winners and losers when trading structures change but BREXIT, by meaning less open trade, means the average UK citizen will be poorer than would otherwise have been the case – unless there is speedy substitution elsewhere. Future politics will be judged on whether this price is material or not and on whether it turns out to be a price worth paying. It is hoped we do not have a populist, more closed economy by the early 2020s.


Turning to the Industrial Strategy released in November One of the government’s key ‘antidotes’ to BREXIT trade affects, the key point is that it presents a worthy intention to tackle the UK’s long-established and widening productivity ‘gap’ (with its closest competitors) by rebuilding the underlying capacity and export competitiveness of UK sectors, places and workers. The issue is whether it yet amounts to more than throwing everything into the kitchen sink and seeing if anything floats!

The Industrial Strategy is a long-term plan to boost productivity and earnings, based on five foundations – re-packaging the drivers of productivity as follows:

  • Ideas (innovation): raise R&D as a percentage of GDP, turn more inventions into markets, and preserve and extend collaboration between economic actors.
  • People (skills): advance technical education, STEM and retraining – raising quality, filling gaps, and spreading spatial capacity and opportunity.
  • Infrastructure (investment): expand transport, housing and digital infrastructure and use public procurement to build resource efficiency.
  • Business Environment (entrepreneurship and competitiveness):
    generate government-industry sector deals, make UK the place to start and grow businesses, and develop a fiscal system that supports scale-ups and exports.
  • Places (local capacity and competitiveness): produce local industrial and transforming cities strategies that narrow regional productivity differentials and other disparities through local leadership and co-operation between places.

The Strategy announces sector deals for the life sciences, construction, artificial intelligence, and automotive industries and proposes ones for creative industries, industrial digitalisation, and nuclear. It also intends to form a team that will support future (emerging and disruptive) sectors.

The Strategy presents four Grand Challenges for the industries of the future – aspiring to a fourth industrial revolution of technological fusion. The four are: artificial Intelligence & big data, future mobility, clean growth, and ageing society. If engaged, Dorset can feature positively in each of these areas.

The Strategy also promises a review of LEP roles. The Industrial Strategy requires Dorset to produce its own Local Industrial Strategy under the LEP’s guidance, although when, what and how this will be done is not yet clear.

The Strategy talks about the composition of the UK economy, with its world class heights but much mediocrity, as being a major cause of relatively low productivity. Any new policies to address this need to emphasize how sustained growth is generated: globally competitive productivity growth on the supply side and greater trading engagement on the demand side.

The Industrial Strategy discusses many of the ‘right’ issues and proposes to act on many of the ‘right’ levers. The timescales, resourcing and processes are unresolved, but it is a reasonable framework for future development, based, as it is, on improving national and local productivity performance.

As with all UK government’ approaches to sub-national development, however, the uncertainties are about long term political commitment and consistency, especially in an era of changing international economic relationships, and about private sector and local buy-in across industry and place.

For Dorset and its neighbours, the important thing is to improve existing economic linkages – markets, supply chains and wider connectivity – and to develop new ones. We need more connective agglomeration, higher aspirations and a positive attitude towards personal, business and community development.

Key Data for Dorset


On 20th December, ONS released the latest regional and sub-regional gross value added (GVA) figures, including historical revisions. For the first time, it produced ‘balanced’ data between the incomes and production methods.

GVA is the standard measure of total ‘output’ generated in a particular place (below the national level) over a particular period. The new numbers are for 2016 and provide a structural benchmark for most local economic analyses. (Given the sluggish performance of the UK and local economy this year, the relative scores are unlikely to have shifted markedly in 2017.)

Total GVA and GVA per Head

Dorset’s total GVA was £16,130mn in 2016 (current prices), placing Dorset 32nd out of the 38 LEP areas. Given the area’s relatively small size (economically), this ranking is roughly to be expected. These standings do not change much from year-to-year because all UK areas tend to grow or fall together. However, there can be lags between the different parts of the country when significant changes in trends are taking place (such as periods of recession). Also, in the long run, there can be bigger changes in position as industries wax and wane and local specialisms grow or fade.

In terms of GVA per head (see first table below), a better measure of relative performance because it takes total population into account, Dorset still did not fair that well. Ignoring some commuting effects, this is a broad measure of productive performance. It shows Dorset to be below regional and national averages (see table).

GVA per head (new balanced approach)

£’000 2015 2016 UK = 100 2015 2016
Dorset 20.5 20.9 Dorset 80.1 79.3
SW 22.4 23.1 SW 87.3 87.7
SE 28.1 28.7 SE 109.8 108.9
England 26.4 27.1 England 102.9 102.9
UK 25.9 26.6 UK 100 100

Source: ONS

Dorset’s index measure of 79.3 (compared with the UK average = 100) was down on the previous year. Indeed, for the first time, Dorset was more than 20 percentage points (pps) below the national average, continuing a downward trend that has existed since, at least, 1997. Dorset ranked 24th out of the 38 LEP areas on this measure.

In historical terms, this ‘middling’ ranking is roughly where one might expect Dorset to be, given that nowhere is standing still and given the sector and infrastructure characteristics of the county. Nevertheless, it is disappointing that recent slippage in comparable standing continues. Dorset GVA per head dropped from just 8.7pps below the UK average in 2000 to 20.7pps below average in 2016. This suggests a significant erosion of relative living standards for Dorset residents over the last 15 years. (N.B. it is not an absolute decline. The numbers are not inflation adjusted and all areas can still be growing. It is the relative change over time that is unfavourable.)

In mitigation, some of this relative decline is caused by the more general widening of the gap between Greater London and most of the rest of the country. London has pulled the UK average up compared with the more economically peripheral areas. Nonetheless, the basic story remains one of a poor local productivity performance in Dorset (and elsewhere): a “lost” decade or so of potential growth in living standards.

Broad Industrial Breakdown

The next table shows the broad industrial breakdown of local value added.

Share of Dorset GVA by industry (SIC classification, % of total)

  1998 2016   1998 2016
ABDE 4.7 2.7 GHI 18.0 17.7
C 12.7 9.3 J 2.7 2.7
F 6.1 6.5 K 6.0 7.3
All production 23.5 18.5 L 22.2 20.2
      MN 5.9 9.0
OPQ 18.2 20.5 RST 3.5 4.1
Public services 18.2 20.5 All private services (except L) 36.1 40.8

Source: ONS

Definitions: ABDE = agriculture, forestry & fishing, mining and quarrying, utilities-fuels, water & waste. C = manufacturing. F = construction. GHI = distribution services (retail, wholesale, transport, accommodation). J = information & communications. K = financial and insurance activities. L = real estate. MN = business services (professional, scientific, technical, administration & support).   OPQ = public services (administration, defence, education, health & social). RST = leisure & culture, household and other personal services).

In industrial terms, all recent growth in Dorset GVA (1997 onwards) has been in services, with most growth (in nominal terms) in business and financial services and least growth in manufacturing and the land-based/fuels producers. The table above shows the broad movement over time in major sector shares. Production has gone from 23.5% in 1998 to 18.5% of the economy in 2016: a drop of 5% in less than two decades. This 5% share has shifted largely to private services (excluding real estate – L climbing from c36% to c41%.

Local LEPs

Amongst the 12 “southern” LEPs (as highlighted in the next table below – first column), Dorset ranked 10th on GVA per head, with only the two furthest west SW areas below it. Overall, across southern England, there were clear ‘east-west’ (peninsula) and ‘north-south’ (coastal) divides in productive performance, overlaying the more usually recognised ‘urban-rural’ one. The divergence across southern England remains significant: fully 93.6pps across the patch from Berkshire to Cornwall. Sadly, Dorset has slipped towards the relegation zone.

GVA per head by LEP area, UK = 100 2016 & pps change since 1998

  index change   index change
Cornwall & IoS 64.8 -0.5 Solent 91.7 -8.9
Heart of the SW 75.2 -4.7 Oxfordshire 126.6 +6.9
Dorset 79.3 -9.4 Coast to Capital 95.6 -10.5
Gloucestershire 99.1 +3.0 Bucks Thames Valley 114.3 -12.7
Swindon & Wilts 96.9 -12.2 Enterprise M3 122.3 +2.1
West of England 111.5 +4.5 Thames Valley Berks 158.4 -6.1

Source ONS.

It is interesting that eight of the LEP areas in the table above have experienced a relative decline in performance since 1998 (second column). Over this period, Dorset’s 9.4% drop in its GVA per head index is similar to the experience of the other south coast areas – Devon (HoSW -4.7%), Hampshire (Solent -8.9%) Sussex (Coast to Capital -10.5%). Cornwall (-0.5%) has just about held its own, (perhaps, because of the substantial development funding that has poured in under EU regional policies) whilst Kent (part of the South East LEP -8.1% – not listed) was also down.

Clearly, there is an issue about relatively weak economic achievement along the English south coast, probably explained by changes in industrial structures – sector and technological specialisation and employment and skills distribution.

Perhaps, the “South Coast Corridor” deserves support from development agents and funding as much as the “Midlands Engine” and the “Northern Powerhouse”.

Within Dorset

Within Dorset, about half of the GVA was generated in Bournemouth and Poole (combined £8.2bn in 2016) and half in the rest of the county (£8.0bn). If we include Christchurch and East Dorset with Bournemouth and Poole), the split would be £10.8bn for the main Dorset conurbation and (£5.3bn) for the rest (roughly 2/3rds to 1/3rd). The following table shows the GVA and GVA per head breakdown within Dorset in detail

Because Dorset has a distinct urban and rural diversity, commuting patterns are important inside the county and between it and its neighbours (mostly to the east). Some GVA produced in the Dorset towns is made by non-residents, but GVA per head is calculated on residents alone. Some Dorset residents’ output is recorded in the Greater South East and some output in the conurbation is generated by labour commuting in from outside. This is why the GVA per hour series for Dorset that relate value output to worker effort – scheduled for release in January – are a better measure of underlying labour productivity.

GVA & GVA per head within Dorset: All industries

  £mn £/head GVA % share
Bournemouth 4,145 20,971 25.7
Poole 3,964 26,167 24.6
Christchurch 1,019 20,596 6.3
East Dorset 1,693 18,999 10.5
North Dorset 1,233 17,354 7.6
Purbeck 879 18,962 5.5
West Dorset 2,322 22,905 14.4
Weymouth & Portland 875 13,386 5.4

Source: ONS

By broad industry (SIC Codes as before), the distribution of GVA is shown in the next table. Unsurprisingly, it confirms the importance of the conurbation for many industries, with the per resident head measure ranging from over £26,000 in Poole to about half that in Weymouth and Portland.

For example, in 2016, B&P contributed 44% of the land based/utility industries, 37% of manufacturing, 41% of construction, 49% of distribution, 58% of information and communications, 86% of financial services, 46% of real estate, 47% of professional services, 53% of public services, and 44% of leisure and other services.

Similarly, it is interesting to note some of the differences in sector importance for different parts of the county. For example, the biggest industries in each area were, respectively, distribution in Weymouth and Portland, public services in West Dorset, Purbeck, North Dorset, Poole and Bournemouth, and real estate in East Dorset and Christchurch.

The table can be used to show were different sectors are important locally. For example, manufacturing is clearly important in Poole but it is also particularly important, albeit at a lesser scale, to activity in East Dorset and West Dorset. Distribution (retailing and transport etc) is important everywhere but some sectors are more concentrated in urban domains, including financial and business services.

GVA Industry Breakdown within Dorset (2016, £mn)

  Bournemouth Poole Christchurch East Dorset
ABDE 44 146 10 57
C 113 453 116 244
F 211 224 80 145
GHI 757 650 211 266
J 128 127 50 40
K 656 359 26 52
L 820 694 250 427
MN 361 313 105 150
OPQ 903 859 132 254
RST 151 140 39 59
  North Dorset Purbeck West Dorset Weymouth & Portland
ABDE 46 52 63 15
C 162 116 255 44
F 119 57 159 53
GHI 212 142 404 219
J 28 16 42 10
K 17 10 37 14
L 242 197 444 193
MN 92 78 271 75
OPQ 248 151 563 194
RST 68 60 84 58



The new data reviewed in this briefing shows the broad ‘league’ tables of economic performance, with Dorset middling, at best. Structural, capacity, skills and market weaknesses remain to be addressed. All the UK needs to raise productivity relative to our overseas competitors. But, within the UK, Dorset needs to raise productivity even more to stop it slipping further behind in the table.

The Government’s recently announced Industrial Strategy aims to correct some of the imbalances and inadequacies displayed by the latest GVA statistics (see our LEB22 for a discussion of the Strategy).

Indeed, this ONS regional performance publication will be one of the areas where future analysers of development research will observe whether the Strategy is having the desired impact. The GVA and GVA per head figures will remain a key, annual data source for analysis of regional economic development across the United Kingdom.

A ‘new’ Industrial Strategy

The UK economy is at a crossroads.  A turning point for growth, inflation and employment is apparent in recent data.  The BREXIT vote might have been the trigger for the change of mood because it adds a new layer of uncertainty but the economy was already going that way.  Moreover, the fundamental imbalances of the UK economy – exhibited by huge trade and fiscal deficits, now ineffective monetary policy and poor comparative productivity – have yet to be addressed – whether we voted in or out of Europe.

The ‘new world’ of external relationships, as evidenced by the 18% drop in sterling since July, implies an adjustment of costs (up) and investment (down) that will probably mean lower growth and higher inflation than would otherwise have occurred over the next few years.  Further out, the UK business sector has the ability and scope to mitigate such negative effects and, indeed, more than offset any adverse changes.  British firms and people are still inventive, innovative, skilled, entrepreneurial and competitive.  With change comes opportunity.  The big question is whether the policy regimes adopted over the next few years facilitate that process of market-led adjustment.

In the UK Autumn Statement, next month, it is expected that the Chancellor of the Exchequer will promote a new Industrial Strategy.  It is tempting to say that there is nothing new in the world of sub-national development.  A re-hash of established intervention strategies is probable, which may be no bad thing.

It is likely that the SW LEPs will be tasked to support major national investments (including power stations, runways and railways) through their activities towards future growth deals, enterprise zones and/or wider business support.  The target, as always, will be more productivity and export-led growth backed by a strong business voice.

We await the government’s ideas with both trepidation and expectation.  We hope the LEPs and their development partners are ready for the task ahead.  We will blog on the ‘new’ strategy after November 23rd, assuming enough details about the new policy approach are forthcoming.

By then, we will have a new US president-in-waiting.  With this and BREXIT dominating the macro world, these are exciting times for analysts of the regional economy and the world of local development.



The Economy – After BREXIT


On 23rd June, the UK electorate voted to ‘leave’ the EU (BREXIT). The immediate economic consequence was a collapse in Sterling, making exports cheaper and imports dearer. Over time, this might help growth and add to inflation. However, the referendum result increased uncertainty about the economic outlook and may reduce net new investment, output and jobs in the months ahead and beyond.

More firms and investors now seem less confident about the outlook for growth. The survey evidence and the forecast consensus has shifted downwards, acknowledging that there is some risk of negative real GDP growth, higher inflation and lower employment.

In addition, upheaval within the leading UK political parties, the lack of terms/a plan to smooth the UK approach to BREXIT, and concerns over the forthcoming presidential election in the United States all encourage a ‘wait and see’ attitude amongst key businesses.

With forward indicators weakening, the economy is still constrained by fundamental weaknesses: low productivity growth and competitiveness (as shown by persistently large trade deficits). For the foreseeable future, uncertainty over BREXIT will not improve these factors.

Latest evidence

  Annual Quarterly Monthly
Real GDP (%ch, yoy) +2.2 (2015) +2.2 (Q2) n.a.
CPI inflation (%ch, yoy) 0.0 (2015) +0.4 (Q2) +0.5 (Jun)
LFS unemployment (%) 5.4 (2015) 5.1 (Q1) 4.9 (Mar-May)
Trade deficit* (£bn) -36.6 (2015) -12.4 (Q1) -2.3 (May)
Base rate (%) 0.5  (2015) 0.5  (Q2) 0.5  (Jul)

Source: ONS   * goods and services

Growth in the UK economy was fairly modest and flat through the first half of 2016. Despite global/national political and economic uncertainty, as the table above indicates, real growth was maintained close to trend (just over 2% year-on-year), inflation remained well below the 2% per annum policy target (though it edged a little higher) and the drop in unemployment may have started to flatten out (at about 5%). The net trade deficit was still enormous and the loose money and austere fiscal policy stance was largely unchanged. Productivity growth remains too low for sustained and sustainable UK growth.

If real GDP growth now slips below 2% per annum, employment growth will ease or reverse and little or no improvement in productivity can be envisaged. Meanwhile, the recent (roughly 9%) drop in Sterling will boost future inflation. The economic outlook, especially in the face of having to unwind or replace trade, regulation and other business-facing agreements within the EU and other partners, has deteriorated.

Local Economy & Development

The latest purchasing managers’ index (PMI) for SW England shows SW output fairly good but employment slipping back in June. These figures were recorded “pre-BREXIT”. Moreover, the SW regional economy tended to soften through the first half of 2016.

For the PMI series, apart from momentum over time, the crucial benchmark is whether the indices are above or below 50. The former indicates growth and the latter stagnation. It will be interesting to see, in response to BREXIT, whether the next reading for SW PMI output, (to be issued mid-August), will edge below the 50-benchmark, as the UK average did in July and the SW employment index already had done in June. Thereafter, the question is whether negative “BREXIT effects” persist.

Other surveys have shown similar recent trends. For example, the British Chamber of Commerce Survey for the latest quarter pointed to “sub-par UK economic growth even prior to the EU-referendum”. With regard to the future outlook, the mood has been generally more cautious than it was, with many sectors from manufacturing, through retailing and car sales, to property and other services declaring a sudden loss of business momentum after the referendum. What little evidence we have suggests there was an immediate drop in household spending, affecting retailing, tourism and leisure locally; a decline in property movements – affecting commercial and housing sales; and a continuation of caution with respect to business investment.  We do not know whether these were temporary or persistent effects.

In response to these developments, and the aggravated risks and eventual opportunities that lie ahead, the development question is how businesses and the various public agents mitigate any negative impacts. The significant drop in sterling will help some (exporters) but not all (importers and exporters dependent on imports of components and materials). In time, the likely increase in a range of input, factory and final prices will affect some supply chains and household budgets. Moreover, there is a fear that the continuing banking malaise (with share values down sharply from already low levels) may dampen the flow of credit – a key ingredient for maintaining growth.

The Bank of England stands ready to support the financial system (e.g. by relaxing banking capital requirements, lowering base rates, and issuing more quantitative easing). It believes the banking and insurance sectors are much more resilient to shocks than they were in 2008. Also, the new “May-Hammond” Treasury has indicated that it may be more willing to borrow and spend than its predecessor. Its ‘new’ industrial/EU-funding policies, however, are far from clear, (especially as the Business Department is being reformed).

Economic Outlook

According to the latest consensus compiled by HM Treasury (see table below), growth will be very sluggish in the next 18 months. The average forecast is for growth rates well below trend in 2016 and 2017 whilst CPI inflation is now expected to exceed the target (2% per annum) during 2017 and unemployment to rise back above 5.5%.

According to these ‘experts’, the outlook has changed dramatically. Indeed, average forecasts for growth in 2017 slumped from 2.1% (June survey) to only 0.8% (July survey) after the BREXIT vote. Moreover, the current account and public debt positions are worse for 2016 and only expected to improve marginally in 2017. The Bank of England perspective (in its forthcoming August Inflation Report) is expected to show a similar warning about a deterioration in economic prospects.

BREXIT has induced a change in mood, with the consensus about economic prospects shifting markedly downwards in recent weeks. Indeed, the drop in forecasters’ expectations has gained real expression with the downgrading of UK debt by the major credit rating agencies, the drop in the value of UK banking and other stocks, and the Bank of England’s FPC recent highlighting of risks to the financial system.

UK Consensus Forecasts: July 2016

  2016 2017
Growth +1.6 +0.8
Inflation +1.3 +2.4
Unemployment 5.3 5.6
  2016/17 2017/18
Current Account (£bn) -103.1 -82.1
PSNB (£bn) 67.4 58.3

Source: HM Treasury

Some of the new negative sentiment may fade after the initial shock but the danger is that the process of extracting the UK from the EU will generate a series of economic and political ‘aftershocks’ to the markets and the real economy and this could deplete confidence at a fundamental level.

As we have written before (see previous posts), the economics of BREXIT are straightforward. In summary, the creation of economic barriers, borders or boundaries, whether real or psychological, always leads to an increase in costs. That increase in costs, exacerbated by broader uncertainty, stalls investment, reduces output and cuts employment compared with what otherwise might have occurred. Thereby, the outlook for productivity and trade deteriorates.

The resulting fall in business profits and household incomes means less revenue for the government, which requires further fiscal austerity unless the government is willing to borrow more and grow the public deficit. In turn, these factors reduce realised and potential economic activity and confidence. At the same time, as higher costs are pushed through the supply chain, more inflation is generated, which, if accompanied by higher state borrowing, means, at some point, higher interest rates – a further dampener on future domestic demand.

It is important to note that in all these economic linkages and trends, we refer to outcomes in net, macro terms. There will be companies and workers in particular sectors that will benefit from the countervailing forces that always occur within any process of economic adjustment. There will be individual ‘winners’ and ‘losers’. The key observation, however, is that the net effect, for the economy as a whole and for the foreseeable future, is one of worsening growth prospects.

BREXIT will affect many Southern businesses and households. Some of these effects will be immediate and obvious; some will be postponed and insidious and some will not have noticeable impacts for several years. But, on average, in due course, less investment means less growth and lower living standards. We must not be distracted by one-off (good or bad) data releases or items of business news over the weeks and months ahead. The important thing is the change to performance potential, and its realisation, over the long run.

In the long run (after 2020), the economy may start to recover (assuming no major global ‘shocks’) from BREXIT.   In the very long term (perhaps, eight years plus), it may be back, or even beyond, where it might have been without BREXIT. The economy is a dynamic creature made up of millions of individual and group actors with diverse characteristics and behaviours. Uncertainty creates opportunity as well as fear. Human beings are inventive, innovative and entrepreneurial, especially as new generations emerge without the baggage of history. It is reasonable, therefore, to remain a long-term optimist about the economy.

For the near future, however, the prognosis is for a period/process of negative adjustment.

  • In the short run, this is likely to harm sectors dependent on current household and business spending first, though these effects may be temporary if incomes and employment hold up over the rest of 2016.
  • In the medium term, it will be the new trading adjustments that matter: 1) sterling depreciation helping exporters unless they are vulnerable to supply chain shifts caused by political uncertainty and higher import prices and 2) trade agreements and new tariff regimes for UK businesses active across the world. Both positive and negative effects are likely to ensue here.
  • In the long run, changes to corporate investment strategies will drive the impact. It is unlikely that global companies will see UK locations and facilities as favoured areas for investment to gain access to the wider European market. Importantly, it is changes at the margin that matter, specifically the potential for erosion of commitment to existing UK operations over time. Behavioural changes will gradually impact replacement and new investment demand. In a decade, the fear is that the next family of aerospace, motors and other engineering and electronics products and services go, at least partially, elsewhere, as trading costs and regulatory frameworks adjust to a new political reality

Analysis of current economic prospects makes regional development activity to boost the drivers of productivity even more vital. The development policy and delivery question is whether the negatives can be mitigated in terms of repairing or building local competitiveness over time. Even as the BREXIT storm rolls over us, we must prepare for better days.

BREXIT 3 – the decision

A small majority of UK voters have chosen to ‘leave’ the EU.  Now we will reap the economic deluge in terms of financial market shocks, lower investment and fewer jobs.  It will take a few years for the negotiations to assert some certainty back on the future path of trade and exchange.  It will take longer for the negative effects on inward investment to work themselves out.  The UK economy will be weaker than it otherwise would have been for up to a decade.  The SW economy will be poorer as key factories and facilities across the region are sidelined or lost, many household incomes are reduced and fiscal transfer resources are diminished.

The question, then, is how we respond to and mitigate these choices and negative effects.  The next Prime Minister, as well as negotiating with all our partners, has to instigate policies that will increase investment, raise productivity and drive development whilst dealing with the probable break up of the United Kingdom.  Hopefully, by 2025-30, we can look back and say “well, it was a painful adjustment but we did it and now the future looks bright again for England” (alone?).  Today, it’s hard to look ahead with confidence but the hard work starts now.

SW Gross Disposable Household Income in 2014

The annual release of sub-regional gross disposable household income (GDHI) data has just occurred.  The latest numbers are for 2014.  They show SW England generating £98.4bn of GDHI that year, up from £96.9bn in 2013: a modest increase of just 1.5%.  (Because CPI inflation was also 1.5% in 2014 that implies there was no real increase in household spending power.)  The annual growth range was from +4.1% in Swindon to -0.5% in Bournemouth and Poole.

The distribution of SW GDHI across the region, by LEP area, ranged from £29.8bn (30.3% of the SW total) in the Heart of the South West (HoSW = Devon and Somerset, including Plymouth and Torbay) to under £10bn (9.4%) in Cornwall and the Isles of Scilly (CIoS).  West of England (WoE = Bristol, Bath and NE Somerset, N Somerset and S Gloucestershire) contributed £20.1bn (20.4%) whilst the Gloucestershire, Swindon and Wiltshire, and Dorset (including Bournemouth and Poole) areas generated £11.8bn (12%), £13.1bn (13.3%) and £14.3bn (14.6%) respectively.

Turning to GDHI per head, in order to compare these areas better, puts Gloucestershire at the ‘top’ with £19,273 (7.3% above the UK average).  CIoS was at the bottom at £16,862 (-6.1% below).  HoSW was also below average (£17,579 or -2.1% below).  Dorset was second highest (£18,907, +5.3% below), then Swindon and Wiltshire (£18,818 or +4.8% below) and then WoE (£18,273, +1.7% below).  Again, in annual growth terms the range was from +3.3% in Swindon to -1.6% in Bournemouth and Poole.

Within these areas, it is striking how relatively ‘low’ the GDHI per head figures are for cities/urban areas and how relatively ‘high’ they are for county/rural areas.  For example, Bristol, Plymouth and Torbay all had GDHI per head readings more than £1,000 below the national average whereas Dorset county, Wiltshire County and non-Bristol WoE were all more than £1,000 above average.  Even in the more ‘balanced’ areas, such as Dorset and Wiltshire, the ‘county’ parts were above average whereas the urban parts were not.  (This is always in marked contrast to the sub-regional gross value added data which usually shows urban areas creating more output per head than rural areas: a reflection of commuting patterns and work/residence differences.

Roughly 70% of SW GDHI and GDHI per head comes from ‘compensation of employees‘.  This category grew by 2.9% in 2014, compared with 6.9% for property incomes received.

Regional GVA in 2014

In December, the ONS releases the gross value added (GVA – income based) and GVA per head data for the UK regions, devolved administrations and lower geographies. This provides our basic comparative measure of local economic performance.  It is a corner stone of most UK applied economic analysis below the national level. The table below summarises the new, local data for 2014.

Southern England 2014

2014 GVA


GVA per head (£) GVA per head (UK = 100)
Bournemouth & Poole 7941 23254 94.5
Rest of Dorset 8248 19719 80.1
Somerset 10641 19648 79.8
Plymouth 5195 19864 80.7
Torbay 2066 15354 63.1
Rest of Devon 15418 20146 81.8
Swindon 6551 30357 123.3
Rest of Wiltshire 9841 20369 82.7
Southampton 5782 23572 95.8
South Hampshire 11048 24568 99.8
Central Hampshire 14164 26479 107.6
Portsmouth 5381 25735 104.5
Isle of Wight 3071 22074 89.7

Source ONS

The new data confirms many of the descriptive characteristics that we already know about local southern economies. The relative performance of the regional economy seldom changes significantly over time.

  • Last year, was one of relatively good GVA growth, with averages for the UK as a whole of 3.6%), for SW England of 3.1% and for SE England of 2.8%.  Given negligible inflation, these are virtually real rates of growth.
  • Within southern England, north and east tends to perform ‘better’ than south and west. Also, urban areas tend to perform better than more rural areas.  This is normal, reflecting the workplace basis of the data, sector spatial characteristics and a typical concentration of high value economic activity in the more urban parts of any area.
  • Relative to the UK as a whole, southern GVA per head tends to be below average, but this reflects the effect of the ‘black hole’ that is Greater London on that average rater than any underlying weakness or fragility.

As well as providing new data, the ONS revises its numbers for previous years. This can change history quite markedly, although this time the revisions have, generally, been reasonably modest. Summarising the latest long-term series for GVA per head indices,

  • Relative performance has been fairly flat over the last two decades. The comparative scores have tended to sag a fraction.  The SE index tends towards 110 (10% above) versus the UK average whereas the SW index tends to 80 (20% below).
  • Generally, the historical series are remarkably consistent. It seems to be difficult to shift these fundamental measures of relative local economic performance over time, despite cyclical ‘booms and busts’ and profound structural changes to industry, technology and demographics.

A third aspect of the new local information is the sector breakdown by major industries.  The sector data for 2014 confirms that:

  • In aggregate terms, SW manufacturing and construction were only 11.9% and 6.8% of GVA respectively.
  • Amongst services, 17.9% of total SW GVA were distribution, 34.2% were financial and business, and 20.6% were mainly in the public sector.

GVA is our base indicator of economic performance. The latest figures show southern areas holding their own (within the regional economic league tables) and maintaining their industrial structure.  2014 was a good economic year.  There has been some loss of momentum in 2015.  Nonetheless, it would be a surprise if the relative score has moved much in aggregate terms and in terms of industrial structure over the last twelve months

The development community may wish and is tasked to shift its relative economic score over time. This means a relative improvement in measures such as GVA per head. This may be a worthy aspiration but it needs to be tempered by a healthy dose of realism. Without radical change in the economic fundamentals (including major investment in infrastructure, innovation and skills, competitiveness, and the wider capital base), the best that might be achieved is running to stand still.

Radical change means an emphasis on private sector productivity, engagement with markets and technologies, and a focus on the quality of our environmental and human capital.  In the years ahead, that would be a sound, strategic vision for growth of, and development in, the southern economies.


Autumn Statement – fortune favours the brave

In headline terms, the Chancellor’s Autumn Statement/Comprehensive Spending Review surprised many commentators, from its withdrawal from cutting tax credits to its lower than expected percentage cuts in many departmental expenditure settlements.  Nevertheless, overall, it remained an austerity budget based on higher taxation and lower public spending.  It is a settlement that, if fully enacted, will, itself, tend to detract from economic growth over the next five years.  Some of the measures, however, will re-direct activity to the private sector and, in theory, might ‘crowd in’ more private activity.

These ideas should be evident in the macroeconomic forecasts published by the Office of Budget Responsibility at the same time as the statement.  In fact, the forecasts offered are remarkably flat.  If the OBR is right, we are in for a period of rather boring overall macro trends with subdued growth in output and investment, in inflation, and in employment and productivity, leading to a gradual improvement in the public finances (see table).

OBR Forecasts November 2016 2015 2016 2017 2018 2019 2020
Real GDP (%ch pa) 2.4 2.4 2.5 2.4 2.3 2.3
Inflation (%ch pa) 0.1 1.0 1.8 1.9 2.0 2.0
Employment (%ch pa) 1.3 1.3 0.6 0.6 0.3 0.6
Productivity (%ch pa) 1.1 1.1 1.9 1.8 2.0 1.7
Investment (%ch pa) 6.1 7.4 7.1 7.0 6.6 4.5
Unemployment rate (%) 5.5 5.2 5.2 5.3 5.4 5.4
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Deficit borrowing/GDP (%) 3.9 2.5 1.2 0.2 -0.5 -0.6
Debt/GDP (%) 82.5 81.7 79.9 77.3 74.3 71.3
Source: OBR

The more interesting facets of the announcements are micro in nature.  The local impacts of the devolution measures on governance and business rates, conformation of local development ‘growth deal’ funding, the creation of more enterprise zones, the infrastructure and house building proposals, and the buy-to-let stamp duty, apprenticeship levy and other taxes may have a profound effect on the way local economy’s develop over the next five years.  Although the central view is that this will not affect very much the underlying potential growth rate of the economy as a whole, there is plenty of cope for unforeseen consequences and distributional effects to be significant.

In SW England, we will be particularly intrigued to see how plans for devolution, (particularly the prospect of local government rationalisation in Dorset), and the new/extended enterprise zones at Dorset Green (Wareham), Bristol and Bath/Somer Valley, and Heart of the SW (Exeter and Bridgwater) will develop.  History suggests our expectations should be cautious … but, perhaps, fortune favours the brave.


ASHE 2015

Each year in November, the ONS releases local data on earnings for employees (not including the self-employed) across the country (ASHE – Annual Survey of Hours and Earnings).  This provides important benchmark data for studying our sub-national economies.

Overall, there was a small (nominal and real) increase in pay in 2015, with the UK averages reaching £426 median and £508 mean a week, respectively 1.9% and 1.3% higher than in 2014.  (The averages in this briefing report are a summary mixture of both full-time and part-time pay.)

The table below highlights the data just released for April 2015 across the Local Enterprise Partnership (LEP) areas of SW England and compares them with the English totals.  The first six columns relate to gross average weekly pay by residence and the rest the equivalent by workplace.  The first column in each section shows the jobs in the area covered by this survey in thousands.  The second and fourth columns show median and mean gross Average Weekly Earnings (AWE) respectively.  The third and fifth columns show the figures as indices relative to the SW total = 100.

In nearly every case, SW pay is less than the English average (which is pulled up by pay rates in London and the South East) and the gap between median and mean earnings (where the latter is pulled up by the comparatively few very high earners) is often less severe than elsewhere.  Unsurprisingly, workplace averages are higher than residence averages, reflecting both commuting patterns and business sector concentrations.

Overall, the latest figures suggest that the traditional differentials across SW England remain intact, with pay higher in the North and East than in the South and West.  The highest LEP averages (West of England) are about 8% above the regional average and the lowest (Cornwall) are about 15% below.  Even the LEP total, however, can be misleading.  There are significant differences within LEP areas too.  Generally, urban areas have higher pay than rural ones, both between and within the LEP areas – though there are exceptions (e.g. Torbay in Devon).  The highest pay averages are in Bristol and Swindon and the lowest in Devon (e.g. Torridge and North Devon).

Residence Jobs AWE median index AWE mean index Workplace Jobs AWE median index AWE mean index
West of England 489 435 108.7 502 107.2 West of England 532 422 108.1 492 108.3
Gloucestershire 260 426 106.4 509 108.6 Gloucestershire 255 417 106.7 477 104.9
Swindon & Wiltshire 282 424 106.1 504 107.6 Swindon & Wiltshire 255 412 105.3 485 106.8
Dorset 306 399 99.7 469 100.1 Dorset 303 386 98.8 447 98.3
Heart of the South West 667 376 94.0 432 92.1 Heart of the South West 633 375 96.0 424 93.4
Cornwall & Isles of Scilly 186 345 86.3 399 85.2 Cornwall & Isles of Scilly 164 332 84.9 377 83.0
South West England 2,188 400 100.0 469 100.0 South West England 2,142 391 100.0 455 100.0
England 21,112 430 107.6 516 110.1 England 21,406 430 110.0 516 113.4

Growth & Interest Rates

The SW purchasing managers’ indices (PMI) for October (just released) rebounded a bit from September’s lowish levels.  The UK recovery appears to be intact but it has slowed from the pace set earlier in the year.  Indeed, the PMI series peaked in January 2014 and they have tended to drop since then.  The latest output and employment balances were 54.1 and 52.6 respectively: the former was the eighth highest and the latter tenth highest (of 12), showing that the recovery is softer locally than in most UK regions and devolved administrations.  The slowdown is most evident in the weakness of new orders and business outstanding.

According to the Bank of England’s latest Inflation Report (November 2015), the softening of growth reflects international factors, especially slower growth in China, emerging markets and the EU.  These dampening effects come directly through physical trade but, more importantly, indirectly through financial exposures and markets: commodities, bonds and equity prices have all fallen in recent months.  Comparatively, the domestic economy is more robust, lead by some emergence of real incomes growth (+3%) and, at last, some positive change in productivity in Q2 2015 – although, so far, most of the recovery has been driven by an increase in hours.

Inflation remains about zero, largely reflecting the decrease in world import prices.  Core UK inflation is said to be more like 1% with wage increases starting to build price expectations.  The Bank says that interest rates will rise over time but, right now, it is signalling a further delay in the needed upward adjustment in base rates.  A return to ‘normal’ base interest rates of 4-5% is considered unlikely for many years.  An increase to a range of 2-3% would be welcome for normal economic working/incentives but is also probably more than two years away.

Inflation will start to rise as last year’s major drop in oil and other global prices fall out of the annual calculation.  This should mean an end to nearly 7 years of 0.5% base rates is imminent.  Central Bankers remain cautious, however, and there is a risk that policy increases come later and then have to be larger than might otherwise be necessary.  A slow rise to 1-1.5% over the next 12-18 months seems advisable but the resistance to action remains strong.  The danger is that tool little too late means more volatile adjustments … even renewed recession … in due course.

The recovery is less strong than it was.  The winter will probably see only modest growth.  SW businesses face a more difficult economy in 2016.