The UK economy’s ticking over fine: that’s the view of Carney, Osborne’s man. So that’s alright then. Or is it? With time-honoured spin we were treated to the most optimistic scenario on every count, with the flip-side downturn kept carefully out of sight. His central message was that “there is no clear evidence of deflationary mindset among UK households”, bankers’ jargon for households continue to borrow to buy what they can’t afford. That matters because the government’s entire economic strategy now hangs on consumer borrowing. That is very worrying if interest rates rise, which the City is constantly lobbying for, because the hundreds of thousands of households mortgaged to the hilt will be forced to cut their spending and the government’s reliance on consumer borrowing as the main driver of demand will collapse. That could be the start of the next crash.
The other driver of demand is supposed to be investment, but that is mostly in property, especially expensive prime property in west London. Then there’s manufacturing (remember Osborne’s ‘march of the makers’ which never materialised like his Northern powerhouse). It’s now caught in a pincer between uncertainties of demand and a higher exchange which illogically makes exports harder to sell. He’s also assuming that the UK economy is now insulated from the impact of global economic pressures for him to be able to set our own monetary policies, but that’s a wry assumption which is simply too good to be true. Another bland assumption is that real wages are now rising, but that neglects the fact that they’ve only been rising for a period of 6 months after a decade of flat or falling wages, and even now have only reached the levels of 2004.
One crucial item of the UK economic outlook which Carney did not even mention – hardly surprisingly given the facts – was the balance of payments. This has gone from very bad to awful. At the latest count Britain’s trade balance in manufactured goods – the index of how far we are paying our way in the world – is nearly £110bn in deficit. This is the worst recorded figure since 1830! The simple fact here is that this appears on the government’s accounts as a huge debit and consequently a significant increase in the government’s deficit. Until that trade deficit is reduced by a very large amount, it is difficult to see how the budget deficit, now standing at just under £90bn (it was predicted by Osborne to be zero in his 2010 budget), can be cut by any large margin.