When all the usual suspects gang up to tell you the UK economic recovery is well under way, beware. Today’s announcement by the ONS that its initial 0.6% growth estimate for the second quarter of this year has now been upgraded to 0.7% is insignificant when put into perspective against the recoveries of the 5 other UK recessions in the previous hundred years. This time the economy still remains 3.3% below its pre-crash level in 2008, while at the same stage of cycle (i.e. 5 years on from the crash) it was nearly 5% above the pre-crash level in the early 1980s, 6% above pre-crash in the 1920s, 6% above pre-crash again in the early 1930s, 7% above pre-crash in the early 1970s, and nearly 10% above pre-crash in the 1990s. Of course any growth at all is welcome against the wretched background of flatlining over the last 4 years, but come on, at this stage 0.7% is to be apologised for both historically and in comparison with other other economies emerging from recession this time round – Britain still 3% down, but France 1% down, Germany 2% up, the US 4% up and Canada 6% up.
There are other reasons too for a good douse of scepticism about the current champagne-popping in the City and the Treasury. Manufacturing was up 0.7% in the second quarter, but has still plummeted 10% below its pre-crash level. Exports were up 3.6%, but imports were up more, and the balance of payments in traded goods is still more than an annual £100bn in deficit. Unemployment still remains at the exceptionally high and unacceptable level of 2.5 million, and there has been no re-balancing of the economy from finance to industry. Bank lending to industry still remains obstinately negative as it has been for the last 5 years, and virtually no reform of the banks has been put in place despite the continuing stream of scams of misfeasance. And Osborne’s ill-fated Help to Buy scheme, offering significant increases in mortgage availability without any increase in housing supply, threatens to unleash yet another major housing bubble, exactly like the previous three in the last 40 years.
The UK economy still remains hugely lop-sided and dysfunctional. Even exports, lionised as one of the key drivers in this alleged ‘surge’, are actually one of the most worrying items. The economies of Brazil, Russia, China and India have all seriously slowed in the last few months, even if China seems now to be stabilising though at a much reduced level compared with the past. The Eurozone appears to be recovering from a near-death vortex of decline, but its medium term prospects remain dire. Austerity is not making the peripheral southern countries more competitive, just crippling them. Germany rejects all expansionary policies which could be decisive in enabling the peripherals to survive. The only real long-term solution for the Eurozone is for a break-up into a two-speed Europe, but that’s hardly going to help UK exports either.