House prices are running away with themselves, headlines warned until recently. Now property values, even in the most fashionable parts of London, are cooling. Employment is booming, but mainly among the self-employed. Inflation? Well, no one knows where that is heading.
To say there is confusion at the heart of economic policymaking is an understatement. What seemed certain only a few months ago is no longer so. Earlier this year, interest rate rises were unlikely until the summer of 2016. A month ago, the City was speculating they could start as early as November, with another before the general election next May. Last week, the odds on a November rise began to lengthen and bets on a delay until the summer of 2015 became increasingly popular.
In a febrile, unsettled climate, beset by uncertainties – from last week's collapse of Portugal's third largest bank (a warning of worse to come in the eurozone?) to the Scottish referendum – the nation is hanging on every word from the Bank of England over the prospect of higher interest rates. Mark Carney doesn't need to be told he is in the spotlight or that he is in a difficult position.
At the moment households and businesses are responding to the confusion with a conservative approach, probably after reading the headlines that followed Carney's springtime revisionist speeches in which he concluded that Britain's economy was healthier than previously thought. One of the more comprehensive surveys shows 60% of households expect rates to rise this year.
Bank officials look at this response with satisfaction. They think it is not just Carney's speeches but the weight of reports and interviews by other monetary policy committee members that has nudged people to prepare for a hike. They don't believe people are reacting to a flip-flopping, conflict-ridden committee that cannot make up its mind.
Yet the slowing of the economy as the summer approached has shown it may not be as strong or resilient as Carney suggested, especially in his Mansion House speech. So what are the mixed signals that have befuddled the brightest brains? Discussing them one by one might help.
The jobs market is Carney's biggest headache. Unemployment has fallen further and faster than he predicted last year and employment is at a record high. Yet wages are the key to determining whether the economy is really gaining ground and, apart from in a few select industries, they have fallen in real terms since last year.
The Resolution Foundation thinktank said last week that the situation may be even worse. It said the more-than 700,000 newly self-employed were another drag on wages because many people who opt to work for themselves take a massive pay cut and then struggle to drive up their pay. Rather than a 10% drop in average earnings since the crash, it said the real figure was more likely to be 12%. That is a huge repression of wage growth by employers, who are also demanding increasing flexibility from their full-time workers with measures such as zero-hours contracts.
For much of the year there have been hysterical warnings about how a near 20% rise in London prices over the past year could trigger a calamitous collapse. Carney was urged to step in. He chose to limit mortgage offers through a variety of backdoor credit squeezes, which appears to have slowed the market.
That said, there is no prospect of enough homes coming on the market to satisfy demand and restrict price rises below earnings, even if wages pick up. So maybe there is more to do – and possibly only a rate rise can do it – to slow the market further.
Shoppers have proved resilient amid the ups and downs of the economy's shifting sands. Since 2012, there has been a steady rise in spending and, while many high streets have a ragged feel, especially as more shopping goes online, there have been fewer closures than expected. However, wage restraint has kept the average shopper very cost-conscious. Witness the rise of discount supermarkets Aldi and Lidl and the phenomenon of the well-to-do joining the crowd in the discounters' aisles.
The Bank of England will take another shot at forecasting the path of inflation in its quarterly report next month. At 1.5%, it is below the 2% target and showing no sign of rising. The higher pound is cutting the cost of imports; wheat and corn prices are falling, adding to the downward pressure on prices. Yet there are cross-currents even here. Petrol is on the rise and there are plenty of predictions from the City that, with a rise in wages next year on the cards, businesses will find price-rises irresistible.
All these factors almost pose more questions than they answer. The move to a digital economy with workers adopting flexible practices – some out of necessity, others to enhance their lifestyle – creates enormous headaches for official surveys and policymakers. The jobs market is changing out of all recognition and there is little research to tell us the ramifications.
Carney has another problem: he is a minnow in the sea of central bankers, with Janet Yellen at the US Federal Reserve and European Central Bank's Mario Draghi much bigger fish. The Fed is close to raising rates, while the ECB has been making further cuts in credit costs. Will they pursue a predictable path over the next year or two? Possibly, though there are plenty of critics inside both organisations who believe their boss is wrong. The Germans want an end to cheap credit while representatives of America's industrial heartlands are telling the Fed the situation is more fragile than data suggests. In short, they don't know what to do either.
Buffeted by these opposing forces, Carney cannot tell what impact a rise in rates will have on businesses and consumers, or on wages and inflation. So when he does act, it will only be an educated guess.
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