HAMISH MCRAE: It’s back to school, economists!

It’s back to school and back to work. It’s also been a pretty bleak summer for all sorts of reasons. So what does fall have in store for us?

At first glance, it seems likely that the sadness will continue. Taking the most recent economic news, we still have a drop in house prices and a drop in home transactions.

There is a very weak Purchasing Managers’ Index for the manufacturing sector, suggesting a fairly steep contraction in that part of the economy for the rest of this year.

Insolvencies are rising as higher interest rates affect business finances.

And, as Bank of England chief economist Huw Pill acknowledged last week, there is a danger of damage as the Bank continues to raise rates.

When it comes to UK stocks, this depressing mood has manifested itself in share prices, with the FTSE 100 index demonstrating the wisdom of the adage to sell in May.

Actually, the best thing would have been to sell it in February, when the Footsie exceeded 8,000 units.

And better than going out in May would have been going out in April. On the last business day of that month, April 28, it was about 10 percent higher than it is now.

So there are plenty of reasons to look at the next few months with some trepidation.

However, at times like this there is always another, quite different story. Starting with the UK, the labor market remains remarkably strong, much stronger than might be expected given seemingly slow growth.

One obvious measure is pay: the latest figures show that private sector wages rose 8.2 percent on the year.

Another, more forward-thinking report is the report from the Chartered Institute of Personnel and Development, which showed that far more employers expected to add staff in the next three months than were looking to reduce their workforce.

More than 40 percent had difficult-to-fill vacancies.

Or take the housing market. It’s soft, of course, but while figures from the Nationwide Building Society showed prices down 5.3 percent from their peak in August a year ago, they’re still higher than they were at the start of 2022.

We’ve lowered the peak, which, unless you bought last summer, is surely welcome. But this is not an accident. Stable prices and a large increase in wages is exactly what is needed to make housing more affordable.

In fact, as readers will recall, I have long been skeptical of the history of the country experiencing very slow growth.

The International Monetary Fund, which often underestimates the resilience of the UK economy, has had to revise its dire forecasts.

And just on Friday, the Office for National Statistics suddenly found that the UK, far from being the only major economy that is smaller than it was before the pandemic, is actually quite a bit bigger.

It has found that the economy is almost 2 percent larger than it had previously reported. In particular, we have done much better than Germany.

It’s nice to feel vindicated and it makes all those nasty comments about the UK’s poor performance seem pretty stupid.

The acting hasn’t been brilliant, but it hasn’t been terrible either. I can’t help but despair at these savvy economists who have so little intuitive knowledge of how the UK economy works.

If tax revenues and the job market are booming, the economy must be growing reasonably well. I expect that in the coming months the growth figures will be revised further upwards.

What about fall? Until the markets clearly perceive that global interest rates are falling, things will continue to be grumpy.

It doesn’t really matter much whether the Bank of England does one more rate hike or not. I think it should stay where it is, but the most important thing is to start lowering rates as soon as possible.

In any case, we are prisoners of a global movement, which will be led by the US Federal Reserve.

What we do know is that at some point very soon all central banks will start cutting rates.

Pretty soon inflation everywhere will drop to around 3 percent.

Getting used to the fact that inflation is no longer a social and economic catastrophe will be almost as big a change as the experience we’ve had in the last two years, and much more pleasant.