Whisper it, but the British economy may in better shape than you think... - Spectator Blogs

7 February 2013

Doom and gloom is all around. This is another winter, if not of discontent, then certainly of persistent grumbling. Optimism is as rare as a Scottish victory at Twickenham and, frankly, just as fanciful a thought. That, at any rate, is today’s conventional wisdom. Fleet Street looks to a Triple Dip recession and ponders what side dishes will best complement the Chancellor’s broiled reputation.

And yet, and yet, I wonder – hesitantly, I grant you – if all this is quite accurate. Fleet Street, like Westminster, is often fighting the last war. Worse still, it tends to presume that what has happened will continue to happen and that present trends will last forever and a day and so on. No wonder the press is always surprised when this proves to be not the case. It is almost touching.

But things will change. They will pick-up too. It is a matter of when, not, I think, if. And there is some reason to think that the economy is not quite so becalmed as the headlines sometimes suggest. Bill Jamieson makes the case for a tepid optimism today.

The good – or goodish – news is that: service sector companies expectations are their highest in eight months. Output is increasing, albeit more slowly than would be ideal. Retail sales were up 3% (in value) last month. Manufacturing employment is up (albeit marginally) for the first time in nearly a year. For the fifth month in a row the number of mortgage approvals increased and, happily, employment continued to rise. The number of full-time jobs increased whilst part-time employment fell in the last quarter. There are signs of business confidence returning.

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Now we should not make too much of this. An economy limping along is hardly one in fine fettle. But a (temporary, we hope) limp need not be confused with a crippling injury.

All this reminds me of a sharp Tyler Cowen post from a while back in which he pointed out that, actually, large parts of the British economy are doing a little better than you think.

The slowdown in the last three months of 2012 (subject to revision soon enough anyway) was, at least in part, attributable to disruptions to oil and gas production in the North Sea (hey: the UK is oil-dependent too, not just a putative independent Scotland!). More significantly, perhaps, construction output fell by 11% in 2012.

Remove these elements from the equation and, according to Cowen, the non-oil, non-construction economy actually probably grew by about 0.7% in the last quarter. The service sector, he suggests, grew by 1.4%.

Now that’s not a prize-winning performance by any means but nor is it quite the disaster everyone presumes is actually unfolding. True, there is an element of But apart from that, Mrs Lincoln, did you enjoy the play? since the construction business is an important part of the economy. Nevertheless, it is a useful reminder that while hardly zipping along much – indeed most – of the economy is at least keeping its head above water. Even if only just. (And, of course, a construction recovery would benefit other sectors too.)

So, perhaps – and as I’m no kind of expert on these matters this is all conjectural – Things Are Not Quite As Bad As They Seem. Not glad, confident morning by any means but nor, either, some hideous dark night of the soul either. And, perhaps, there are grounds for hoping that a modest recovery might yet be seen this year.

How much any of this has to do with government policy is another matter entirely. If there is a proper recovery George Osborne will receive more credit than he deserves just as, in the present climate, he must thole more criticism than he entirely deserves too.

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  • passerby

    From the article:
    “The good – or goodish – news is that: service sector companies expectations are their highest in eight months.”

    So the good news is trade is worse than nine months ago?

  • Daniel Maris

    PS The Greeks are no longer in deficit.

  • Daniel Maris

    Why don’t you remove the unemployed from the economy for good measure? That will get you an even better result.

    Do you ever venture outside of the Borders? Come down to London and see for yourself. Yes, it looks pretty prosperous in many ways. But the vast majority of those flats going up are being built for Russian oligarchs, Chinese counterfeiters, and sundry other shady characters from around the globe – people who we have no obligation to house, yet we do.

    Londoners find it increasingly difficult to live anywhere in the capital. Millions have been on real pay cuts year after year since the early 2000s. Meanwhile, energy, transport and housing costs continue to rise above inflation.

    And all thanks to the wonderful mass immigration you support from the safety of the Borders.

  • Ron Todd

    Does GDP include all the national spending including our tax money spent by the government? If it does would a reduction of government and local government spending on unnecessary things, like diversity co-ordinators and various well paid quango-crats show up as a reduction in GNP?

  • andagain

    More significantly, perhaps, construction output fell by 11% in 2012.

    The Tory bach benches should be delighted. You will notice that it is always some of them that complain whenever anyone wants to build anything.

  • Nick Reid

    You’re absolutely right apart from one worrying downside that you don’t mention – the recent fall in sterling.

    The biggest drag on consumption (70% of the economy) over recent years has been high inflation, much higher than the 1% or so earnings growth that people are getting. And this inflation has been driven by higher oil, gas and food prices globally but even higher prices in sterling terms.

    So the recent fall in sterling and its likely knock-on implications for inflation is a concern. Unfortunately the downsides from higher imported inflation seem to be larger than the advantages that a weaker currency provides for UK exporters.

  • LB

    You’re deluded.

    Ask yourself, which debts have the government left off the books?

    It’s pensions

    In summary, the estimates in the new supplementary table indicate a total Government pension obligation, at the end of December 2010, of £5.01 trillion, or 342 per cent of GDP

    Currently that’s about 5,300 bn, or almost 10 times tax revenues.

    The private sectors OK, its the state that’s the millstone that’s screwed the economy for decades.

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