GDP figures and three graphs which show a weak recovery in the UK
The first shows that the UK has had the slowest and smallest recovery of all the major economies. Our economy, under the cosh of austerity, is still 1.3% smaller than its pre-recession peak; the “slowest recovery on record” as Mark Carney the Governor of the Bank of England puts it. The US economy, which applied stimulus measures, has been steadily in growth since 2010.
The second (from the NIESR) shows that this has been the slowest recovery of the last century. In all other recessions, the pre-recession peak was reached again in less than four years, while this time austerity has postponed recovery until nearly 6 years after the peak. This was not the plan. The Coalition predicted in the June 2010 Budget that their austerity would produce growth of 2.9% in 2013. But it produced 3 years of flat lining. Austerity hasn’t worked. Today’s figure of 1.9% should be measured against the average rate of growth of 3.2% in the decade before the crisis.
The third from the IMF database (via Duncan Weldon) shows the very slow recovery of GDP per capita. National wealth per head is still 5% or so below its 2008 levels. It reflects the failure of business investment to recover yet; with the consequence that productivity has failed to recover – unlike other economies. The decline in living standards and real wages are related to this. It also explains why unemployment has fallen faster than expected. Employers are taking on minimum wage workers rather than investing for higher productivity. Figures from business investment, which are not yet released, may show some growth, but they have a mountain to climb to reach pre-recession levels.
A return to growth becomes inevitable at some point in spite of even this government: underlying pressures build which produce some recovery – for example car sales grow eventually because cars become clapped out. Car sales grew by 10% last year, taking them back to 2007 pre-recession levels. Growth will probably continue this year, fuelled in part by an improving world economy - quarterly growth in the G20 economies is running at 0.9% - equivalent to 3.6% annual growth. But this growth has a number of worrying features which emphasise its fragility.
Debt-fuelled spending seems to be a major factor in recovery. Individuals now owe £1.43 trillion, including mortgage debt – breaking a record previously set in September 2008. Associated with this, the household saving ratio which had increased substantially since 2008, has started to decline.
House prices increasing 11.6% in London last year promoted by the government’s policies produce the dangers of a bubble. A reverse to this, perhaps arising from the top of the housing market with the international superrich, losing interest because of the pound rising, or the current turbulence in emerging markets as the US Fed retreats from QE, could hit confidence and reverse the increase in consumer spending (London could also become a safe haven which would accentuate the problems for most in the housing market).
Far from rebalancing the economy, growth so far has been dangerously unbalanced regionally and sectorally. This has serious consequences for people who are not seeing recovery in their region or sphere of employment, and are seeing falling living standards - £1600 per household on average since the government came to power. “Whose recovery?” is a very real question for most people. According to a poll commissioned by Class in November 2013, 4 in 5 Britons do not feel they are personally benefitting from the recovery. It also poses serious questions about the sustainability of the recovery.
The last quarter figures show that the service sector grew at a faster rate than manufacturing (0.8 v 0.7%) while the construction sector fell 0.3%. Because of the size of the service sector, it accounted for 0.6% of the 0.7% growth over the quarter – so much for the march of the makers promised by the government.
Regionally, recovery has been overwhelmingly concentrated on London – 79% of new private sector jobs in 2010-2012 (or 216,700 jobs) were in London, no less than ten times more than the second-fastest growing city (Edinburgh). London received 45% of Foreign Direct Investment in 2012 too. The majority of Londoners see no benefit of this either. 28% of Londoners live in poverty as compared to 21% in the rest of England. growth is seeing a more divided economy with a hollowed-out middle – extreme wealth for the few, while more and more are in low wage, low investment, low productivity services employment.
If the figures show at best an unbalanced, fragile and frothy recovery, the scope is great for Labour to show that it has long-term plans which will grow investment, rebalance the economy, reduce inequality and get living standards moving again, so that sustainable recovery becomes a reality. No-one can have confidence in the next few months let alone the next decades. Short-term action to restore living standards coupled with a plan of active government that rebalances the economy, challenges inequality and provides hope for the future will be a winner.