We know that growth in December was heavily affected by the snowy weather but there are also concerns that the economy may have slowed for other reasons. We would have to wait until April for the next quarter’s GDP data, but even when this arrives it will be a very provisional estimate. So it makes sense to look at other data sources to gauge the pace of recovery – notably the employment figures and business survey information, which also have the benefit of being less subject to data revision. The employment data broadly support the view that the underlying momentum of growth has remained healthy despite the impact of December’s weather on activity levels. Unlike the early 1980s and the early 1990s, when unemployment continued to rise in the early phases of the recovery and the jobless rate rose to over 10%, we have seen a much earlier turnaround in employment in this recovery. Employment picked up in the first half of last year and has risen by nearly 300,000 since last winter.4 More recently, jobs growth has eased off with falling public sector employment offsetting increases in the private sector. But the official Labour Force Survey unemployment rate has remained at around 8% or just below since the recovery started in the second half of 2009. Indeed, the most recent figure we have for unemployment – the claimant count number for February – indicates the lowest jobless total on that measure for almost two years.
And we have already seen some revision to the GDP data through this recession and recovery – for example the rise in 2009 fourth quarter GDP growth has been revised up from a provisional estimate of 0.1% to 0.5% in the space of just twelve months. For all these reasons, I believe we need to be particularly wary of basing monetary policy at present on fine judgements about the current and future growth of the economy. The MPC’s remit is clearly couched in terms of keeping consumer price inflation on target and we have a responsibility to take action when we see the sort of significant upside deviations we have experienced, not just recently, but over a number of years now. Most of the evidence suggests that recovery is underway and it is likely to continue, even though the pace of growth is somewhat uncertain. There are upside risks to the growth outlook as well as downside concerns. The world economy is growing strongly and this is a major factor underlying current inflationary pressures from global energy and commodity prices. And a stronger response of wage growth to current high headline inflation could support stronger growth of consumption than most forecasters currently expect. We have entered a period of UK monetary policy-making when the judgements made by the MPC are much less straightforward than they appeared to be before the financial crisis.