HAMISH MCRAE: It’s back to school economists!

It’s back to school and back to work. It’s been a pretty grim summer, too, for all sorts of reasons. So what’s in store for fall?

At first glance, it seems likely that the gloom will continue. According to the latest economic news, we still have falling house prices and a slump in real estate transactions.

The purchasing managers’ index for the manufacturing sector is very weak, suggesting that this part of the economy will contract sharply for the rest of this year.

Bankruptcies are on the rise as higher interest rates weigh on corporate finances.

And as Bank of England chief economist Huw Pill acknowledged last week, there is a risk of damage if the bank continues to hike rates.

Lessons to be learned: The International Monetary Fund, which appears to be underestimating the resilience of the UK economy, has had to revise its gloomy forecasts

As for UK equities, this depressing mood has been reflected in stock prices, with the FTSE 100 index proving the wisdom of the adage to sell in May.

Actually, the best time to sell would have been February, when the Footsie would have passed the 8,000 mark.

And it would have been better to get out in April than in May. On the last trading day of this month, April 28, it was about 10 percent higher than it is now.

So there are many reasons to view the coming months with some apprehension.

But in a time like this, there is always a very different story. Starting with the UK, the labor market remains remarkably strong, much stronger than one would expect given what appears to be sluggish growth.

One obvious benchmark is wages, with the latest figures showing private sector wages are up 8.2 percent year-on-year.

Another more forward-looking report is the report from the Chartered Institute of Personnel and Development, which shows that many more employers expect to increase their workforce over the next three months than they plan to downsize.

More than 40 percent had vacancies that were difficult to fill.

Or take the real estate market. That’s weak, of course, but while figures from the Nationwide Building Society show prices are 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 saved the tip, which is certainly welcome unless you bought it last summer. But this is not a crash. Stable prices and a significant increase in wages are exactly what is needed to make housing more affordable.

As readers may recall, I have long been skeptical about the history of the country, which is experiencing very slow growth.

The International Monetary Fund, which appears to be underestimating the resilience of the UK economy, has had to revise its gloomy forecasts.

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

The economy was found to be nearly 2 percent larger than previously reported. In particular, we did much better than Germany.

It’s nice to be justified and makes all the uncomfortable comments about Britain’s poor performance seem pretty silly.

The performance wasn’t brilliant, but it wasn’t terrible either. I sense a sense of desperation at these clever economists who have such an unintuitive grasp of how the UK economy works.

When tax revenues and jobs are booming, the economy needs to be growing reasonably well. I expect growth numbers to continue to be revised upwards in the coming months.

What about the fall? As long as markets don’t have a strong sense that global interest rates are falling, it will remain dour.

It doesn’t really matter much whether the Bank of England hikes rates again or not. I think it should stay where it is, but the more important thing is to start cutting interest rates as soon as possible.

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

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

Inflation will soon drop to around 3 percent everywhere.

Getting used to the fact that inflation is no longer a social and economic disaster will be a change almost as big as the experience we’ve had over the last two years – and a far more pleasant one.