The UK economy looks very weak

Australia and Britain face many of the same economic problems, but the latest data show Australia currently has the stronger economy — accompanied by a more difficult inflation problem.

Australian real GDP grew 2.5% over the year to the March quarter, compared with just 0.9% in Britain. Australia's unemployment rate is also lower, while employment has been growing more quickly. UK employment increased by about 0.7% over the latest year, compared with 1.3% in Australia.

But stronger Australian activity has been accompanied by greater price pressure. Australian CPI inflation reached 3.5% in July, compared with 2.9% in Britain. Underlying inflation shows an even larger difference: 3.6% in Australia compared with UK core inflation of 2.6%. UK regular wages are currently growing slightly faster, at 3.5% compared with Australia's 3.2%.

The clearest distinction is monetary policy. Australia's cash rate has risen from 3.60% to 4.35% over the past year. Britain's Bank Rate has moved in the opposite direction, from 4.00% to 3.75%.

Australia is therefore outperforming Britain on growth and employment, but that relative strength comes with an important qualification: inflation is proving more persistent and monetary policy has had to become considerably tighter.

Neither country, meanwhile, has much cause for celebration on productivity. Output per hour grew just 0.3% in Australia and 0.4% in Britain over the year to March.