Fortunately for Osborne, Scotland is keeping the parlous state of the economy out of the news. UK manufacturing export orders have now turned negative for the first time in nearly 2 years, dimming any expectations that manufacturing and exports would lead the way in any upsurge. The immediate reasons blamed are the flagging Eurozone economy, the rise in geopolitical risks, and a stronger sterling exchange rate now recovering from the earlier panic about the Scotland vote. The longer-term and much more disturbing reason is the crass neglect of manufacturing during and since the Thatcher era and the abandonment of regional policy after the de-industrialisation of the North. What these latest figures show is that the recovery, such as it is, is wholly reliant on growth in financial services, since this is still the only sector which has exceeded its pre-crash peak. Manufacturing remains in the doldrums still at 7% below its peak, and construction even deeper mired in stagnation at 10% below.
A further knock to the government’s wish (without any active policies to bring it about) to rebalance the economy are the latest July trade figures which reveal the trade gap widening remorselessly again. The trade in goods deficit showed imports rising to £10.2bn over exports, the worst deficit in more than 2 years. Even when services are included, the deficit still widened by a third to £3.3bn compared with the preceding month. To put this in perspective, it means that the UK is now headed towards a deficit in traded goods this year of some £115bn, the largest ever and the peak so far of a rising curve in these deficits over the last 3 decades. A continuing path of decline on this scale is simply untenable.
There is further alarming evidence that the UK economy is already slowing, even before nine-tenths of the population have even begun to feel its benefits. The NIESR think-tank has just estimated that the economy grew by only 0.6% in the 3 months to the end of August, well below the over-optimistic predictions at the start of the year. If wages continue to fall – and there is no increase in aggregate demand to turn that around – then even with only 8 months to the general election next May it is difficult to see how a deflating economy will not pull away the only remaining crutch on which Tory election hopes depend.