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Real-time updates on the UK economy: trends, expectations and implications from business survey data

by Josh De Lyon and Swati Dhingra. CEP. No.026, December 2021

Miércoles 15 de diciembre de 2021, por Carlos San Juan

Half of UK firms say they are having difficulty recruiting new workers, while around one in five are having issues retaining existing staff, according to new research from the Centre for Economic Performance (CEP) at the London School of Economics and Political Science.

The report analyses the state of the UK economy after the twin shocks of Covid-19 and Brexit, and finds that while the economy has been growing since the summer of 2021, business confidence is dipping as firms adjust to the economic aftermath of the pandemic and the UK’s departure from the European Union.

Executive summary

• Covid-19 has caused substantial shocks to the UK economy. Global supply chains have been disrupted by factory closures, fractured transport networks, labour disruptions and rising energy prices.

• Meanwhile, the Brexit agreement has been implemented, causing a rise in barriers to trade, investment, and migration with the UK’s largest economic partner.

• The economy is changing rapidly, highlighting a need for real-time data to analyse trends. We use monthly business survey data from the Confederation of British Industry (CBI) to document recent trends and future expectations on multiple measures of firms’ activity.

• The majority of firms have increased their volume of business every month since April 2021. However, this trend is weakening and in October the shares of firms increasing and decreasing their business volumes were roughly equal. The decline is mirrored in expectations which have also become less optimistic.

• Firms’ average prices have grown reflecting the average growth in wages, and firms expect these price increases to persist, alongside rising wages. There is a narrowing gap between wage growth and price growth, pointing to a period of lower real wage growth.

• Across sectors, it continues to be firms providing consumer and personal services that are more likely to be experiencing downward trends in business volume and employment.

• Firms in all sectors of the economy report “labour shortages” at the pay rates that they are offering, with at least half of all businesses in each sector experiencing a shortage of workers.

• Approximately half of firms report difficulty recruiting new workers while around one in five firms report issues retaining existing staff. One in ten firms report that the UK’s point-based immigration regime is causing labour shortages.

• Policymakers have an important role to play in supporting adjustments to these shocks.

Policies to incentivise human capital investments will support job transitions across sectors, occupations, and firms. Migration policy could be helpful for localised labour shortages in the short-term. In the long term, both migration and trade policy should be incorporated into a broader economic strategy.

(Full paper downloadable below.)

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