Stagnation Charts #3: Capacity Constraints
Today’s Chart comes from the monthly reports of the Bank of England’s regional agents. Each month the Agents talk to about 700 businesses around the country and their views are captured in a series of scores. Two scores are produced for capacity constraints, one for manufacturing and one for services and they measure how constrained businesses expect to be in their ability to increase output over the next 6 months (excluding any normal seasonal fluctuations). Here are these scores over the period since the eve of the recession:
The commonest factors in determining the scores are a lack/surplus of capital or labour. Generally speaking, you’d expect these charts to be rising and above 0 in a strong recovery, as firms struggle to meet demand. There’s some reason to be cheerful: service companies don’t look to be slipping back into recession (though the manufacturing trend is worrying). But this chart isn’t moving upwards: this is what stagnation looks like.
As it happens, today also saw the publication of the Treasury’s monthly round-up of independent Forecasts for the UK economy. This is a good guide to what the Banks and other financial companies think is happening, and they seem to be in a pessimistic mood. This follows yesterday’s International Monetary Fund forecasts, of 0.7 per cent growth this year and 1.5 per cent next year – revised down from January forecasts of 1.0 and 1.8 per cent. And the City seems to have come to the same conclusion; the average forecast is 0.7 per cent this year and 1.5 per cent next, down from last month’s average of 0.9 per cent and 1.6 per cent.
This downgrading of expectations is another sign of stagnation, with the longed-for recovery continually being postponed. This is a process that has been going on for a while, as a chart in today’s report from the Treasury makes clear:
This too is what stagnation looks like.