The recovery is occurring without much confidence that Britain has resolved the questions thrown up by the financial crisis
To sighs of relief all round, the Bank of England produced an unusually positive account of Britain’s current economic performance this week. Even so, there were plenty of implied and even some explicit caveats to the assessment given by the Bank’s governor Mark Carney on Wednesday that can hardly be overlooked. Recovery had taken hold, Mr Carney reported, but an interest rate rise from the current rock bottom rates remains a long way off. Yesterday, two more reasons for continuing caution announced themselves. In the first, Mr Carney’s colleague Paul Fisher went further than the governor, reminding the BBC that there was still a distance to travel before the overall UK economy got back to normality. Meanwhile, in Brussels, the European Union reported that the eurozone grew by just 0.1% in the third quarter, with France and Germany both slowing from the spring.
Government ministers will be quick to highlight the contrast between the UK’s 0.8% growth in the third quarter and the eurozone’s latest feeble performance. In one sense, the point is well made. As Britain enjoys a long-delayed growth spurt, and the United States shows signs of brushing off the effects of the federal government shutdown, the eurozone slips back towards another contraction. That’s a grim picture for the eurozone 17. In another sense, though, the comparison is a fraught one. Not only is there the inevitable narcissism over small differences between quarterly figures in what remains a precarious recovery across the EU, including the UK. More significantly, the EU and the UK are joined at the hip by the unignorable fact that 40% of UK exports go to the eurozone. Unless they buy, we don’t sell. So, to coin a phrase, we’re in this together.
There is some relatively good news from the European figures, but mostly only in the sense that it might have been even worse. True, Spain is growing again, just about, while the rate of decline is slowing in Greece and Cyprus. And even a tiny sign of growth is better than nothing at all. But faltering growth means the overall picture remains what it has long been – a stalled eurozone, in which a cocktail of high unemployment, low interest rates and political disagreements over structural reform, all made worse in the short-term by the failure to create a new German government, combine to deflationary effect, weakening the currency and holding back export growth. Today, the eurozone economy remains 3% smaller than it was at its pre-crisis peak. The longer this remains the case, and the signs are not encouraging, the worse that European firms and families are going to feel the effects, with political consequences to match.
In judging where the UK position fits into this gloomy frame, remember that two things can be true at the same time. It cannot be denied that there is a recovery, or that it is being driven by consumer spending as well as by the current help-to-buy housing boomlet. Whether it will last beyond the 2015 general election, however, and whether its effects will be felt in average families’ pockets when real wages seem set to continue to track downwards for up to 18 more months, remain real doubts. Mr Carney’s caution about interest rates suggests that he shares them, even while he recognises the rosier general outlook.
The governor is not alone. This week’s opinion polls – which imply that the public is not yet conferring a political dividend on the government for these better economic figures – suggest a wider hedging of bets. That is hardly surprising, given that the recovery, welcome though it unquestionably is, is occurring without much confidence that Britain has resolved many of the large questions thrown up by the financial crisis. There has been no rebalancing of the economy between manufacturing services and finance. The regions are not sharing in the south’s spike. Working- and middle-class wages remain depressed. Saving is in abeyance. Spending is cut. And the relationship with Europe remains suspended in political uncertainty. Here, just as in the eurozone, things may be getting better – but not much.
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