Jim Armitage: 'Recovery' is overstating it – so let's forget about those rate rises for now
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Thursday 07 November 2013
Outlook We should all be thankful that Andrew Sentance is no longer on the Bank of England's Monetary Policy Committee. Or, indeed, that his hawkish view of the economic world, which has seen him advocate interest rate rises since the summer of 2011, will not prevail at its meeting today.
Yesterday, he was given BBC and Financial Times space to urge the Bank's Governor, Mark Carney, to start putting up rates now to save us from the next inflation crisis. The economic recovery, he said, now appears entrenched. Super-low rates are no longer suitable.
His arguments seem persuasive, but only if you agree with his main tenet: that the economic recovery is secure. Because the trouble is, it ain't. Far from being a Rolls-Royce recovery led by our resurgent manufacturers, the economy is sputtering like a lopsided Reliant Robin.
Mr Sentance pointed to this week's service-sector figures, which did indeed indicate a strong rebound. No doubt he will have seen yesterday's manufacturing numbers through the same pink-hued Ray-Bans. But the fact is the economic growth we are seeing is from such a low base that talk of a "recovery" – so delightedly punted by the Coalition – is far too premature, and almost entirely based on the same old debt-fuelled consumer spending, house prices and service industries.
A few facts to bear in mind for when the Chancellor delivers his triumphalist Autumn Statement next month: Britain's economy has progressed at a slower pace than anywhere else in the G7 bar Italy since the financial crisis. Our GDP output is 2.5 per cent lower than it was in the first quarter of 2008: despite inflation, the annualised value of goods and services produced by our economy was £40bn less in the last quarter than it was in that first three months of 2008. The technical depression – the period for which an economy remains below its previous peak – will last for a long while yet.
If you look closer at much of the recent positive economic stuff, worrying trends abound. Take yesterday's manufacturing numbers, showing a supposed upturn in September. Yes, output grew by 1.2 per cent on the month, but taken across the three months, our "March of the Makers" has been stuck by its boots in the mud – almost flat on a year ago. Meanwhile, if the service-sector rebound is really assured, how come employment in the City fell last month, according to TheCityUK? And why did the NIESR think-tank decree GDP growth slowed in October?
If Mr Sentance had had his hawkish way with us, we'd currently have higher interest rates than the rest of Europe and the US, not to mention ultra-loose Japan. The pound would have soared, making our exports uncompetitive, funding costs for our already jittery companies would have become yet more onerous, consumers would have put away their wallets.
A rate rise today would certainly be a ballsy sign of self-confidence. But being brave with our economic recovery is not the approach we need. We mustn't burn our crutches until we're strong enough to walk again.
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