George Osborne has declared that the economic figures released today regarding the UK economy’s growth are a good sign and shows the economy is “stable”.
The Office for National Statistics show that the UK economy grew by 0.2%. The Office of Budgetary Responsibility (OBR) will have to downgrade it’s estimate for growth yet again. From an expected growth of 2.7% down to 1.7% so far and is likely to fall to 1.2%.
The Osborne line continues, and as ever we are supposed to believe that these figures are “good news”. We have to now start asking ourselves what exactly the difference is between “stable” and “stagnant”.
The UK economy now has virtually not grown at all for 9 months – this is certainly “stable”! But in an economic model that means we HAVE to ensure growth in the economy to maintain and increase wealth, and of course to reduce the deficit, the news that the economy has not grown for 9 months is fairly devastating.
We have also been treated to the economic myths associated with such bad news. In a country where we can have the “wrong” snow or leaves on the line – we are also the only economy in Europe that suffers from bad weather in winter; bank holidays; warm weather, wet weather; Easter – oh and Royal Weddings. Apparently all these “one off events” have at some time in the past 9 months explained the dearth of an economic recovery.
The Truth however is far more dyer than anyone can admit. It is not that these figures are bad for the economy, but what the trend tells us. We had a small surge in growth taking back 1.8% of the 4.6% loss in GDP, and now the economy is not growing at all, and has not done so for 9 months. This is no longer a “blip” but a trend.
What is worse is that the parts of the economic figures that were looking good are now looking as though they are following the trend. Manufacturing is now shrinking again. This is very bad news at a time when we are supposed to be “re-balancing” the economy, and having an export led recovery. The truth however, is that manufacturing got an initial boost from a weaker pound, but this advantage only lasts for a relatively short time and then the advantage is lost.
Couple this with hard pressed economies in Europe, Ireland and the US and you have our main export markets in turmoil, recession or austerity – ie) consumers not overly willing to spend.
More bad news is that our main growth appears to yet again be coming from the financial sector. This is obviously not bad per say, but is bad if we are to believe we need a re-balancing in our economy and if we are to reform the financial sector to ensure the exchequer does not become too reliant on financial services and to prevent another credit crunch.
As we have heard, Mr Osborne is not for turning, well yet anyway. George Osborne and David Cameron’s credibility are increasingly reliant on the economy and with all the U-Turns the government has taken, politically they will feel they cannot be seen to take another one, regardless of the evidence.
They are boxing themselves into a corner.
The effects are obvious – we have a higher deficit than under Gordon Brown, no growth, and higher taxation with rising inflation. Yet the “cuts” have not bitten yet, and this will further dampen demand and employment opportunities.
Every time statistics come out a trend of stagnation and of great recessionary trends are shown. Whether we are technically in recession or not is irrelevant – to all intents and purposes we have been in recession for the past 9 months as costs rise and peoples standards of living decreases.
I fear that in 7 years time we will look back at the previous decade as the decade of stagnation.