Let's enjoy being hauled along by America - while we can

Our economy should perform a bit like the US in coming months, if not in quite so gung-ho a manner

ALL TOO good to be true? A recovery in retail sales, excellent inflation figures, yet another fall in unemployment - the list of good news this week has been relentless. Add in the prospect of further falls in interest rates and the memory of the dismal winter, with all that talk of recession, seems to be fading.

More than this, there is the new cry that Britain is experiencing something similar to the US - a step change in the growth potential of the economy thanks to high productivity growth - coupled with something that is not so evident in the US; the ability by exporters to live with a highly-valued currency.

It is an intriguing prospect, for if true it would suggest that the UK can continue to out-perform continental European economies for some time, and that the faster growth for most of the last eight years has been as much the result of structural changes in the economy as a more positive cyclical performance. The trouble is the evidence both of a surge in productivity in service industries and the ability of exporters to live with a strong pound is very thin. Both ideas sound plausible, but they are terribly hard to prove.

What we do know is that both the US and the UK have experienced remarkably similar patterns in business and consumer confidence for several years, though our consumers and particularly our business people have been consistently less optimistic than the Americans (see graphs). By contrast, the German cycles, shown for comparison, are totally different. So in terms of attitudes the two countries seem very similar. This is reflected in the way in which sterling and the dollar have moved in tandem against the European currencies (and now the euro) and the yen.

But this only really tells us something about the degree of synchronisation of the cycles. It is helpful to have that information, for it suggests that while the US economy continues to bound along, we will be pulled along with it. You could argue that the present recovery in demand by UK consumers is mimicking the US, the main difference being that because US consumers did not have to contend with the sharp rise in interest rates we did last year, they did not have a winter wobble.

Maybe, if as expected the US Federal Reserve raises interest rates by up to 1 point in the 12 months, and if as expected we do not, we can retain our confidence even if Americans do not. But that remains to be seen; meanwhile the boomlet in the shops still feels quite fragile.

What we know very little about is where growth is coming from in Britain. There have been various attempts to unpick the US growth figures to see what proportion is accounted for by high-technology industries -the highest I have seen is three-quarters - but finding UK data is harder. Anecdotal evidence abounds: apparently last month's rise in industrial production was driven by a surge in production of mobile phones. But stories are no substitute for figures and we do not know enough about growth in the UK high-technology sector.

We know that a communications revolution is taking place for we can see the evidence in mobile phone sales and surging Internet connections. What we don't know is the impact of this revolution on the efficiency of the broad mass of business. But that is just the manifestation at a consumer level of a process that is also leading to profound changes in the production chain. There must be some productivity gains as a result of all this new investment. But we don't know what, where or how big these are.

As for living with a high currency, the evidence is almost equally unhelpful. Anecdotally, companies are saying that they can now live with a higher currency, as a CBI survey revealed, but when Lehman Brothers tried to identify why exporters seemed to be doing rather better under the high pound than might be expected, they drew pretty much of a blank.

Indeed they thought there may be a problem with the statistics and that we were over-recording exports. There seems to have been a surge in "phantom exports" - that is, exports which are reported to taken place, but which no-one claims to have produced and which do not appear in the imports of other countries. The problem applies particularly to exports to other EU countries, where the old trade recording system has been abandoned.

That won't be the first time the figures have been wrong in recent years, but does it matter? It would not matter too much unless a sudden deterioration in the current account some time in the future were to provoke a fall in sterling. The strong pound has been a key factor in the fall in inflation, so any fall, however welcomed by industry, might have to be offset by a rise in interest rates - just as the present rise is being offset by a decline in rates.

I suspect, too, that the strong pound has had an impact on consumer confidence, not because people notice that imported goods are cheaper in the shops but simply because there is a feelgood factor associated with perceived economic success. Certainly the weak euro has been blamed for poor consumer sales in Germany, but whether the relationship works the other way round is unproven.

So it is back to intuition, to anecdotes from commerce and industry, and to what feels to be happening in the shops. Intuition says that the new technologies must be making a significant contribution to growth and that companies would not spend money on new hi-tech kit if there were no payback. Anecdotes confirm that companies can to some extent live with a high pound, though there may be a problem in over-recording exports. And the news from the shops is distinctly better than even six weeks ago, though the rebound is still quite precarious.

So, yes, our economy can be expected to perform a bit more like the American one in coming months, but not quite in the same gung-ho manner. Then when the US economy eventually falters... no, let's not think about that just yet.

PROMOTED VIDEO
Life and Style
fashionHealth concerns and 'pornified' perceptions have made women more conscious at the beach
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmHe was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
footballA colourful discussion on tactics, the merits of the English footballer and rebuilding Manchester United
Life and Style
Sainsbury's could roll the lorries out across its whole fleet if they are successful
tech
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Travel
The shipping news: a typical Snoozebox construction
travelSpending the night in a shipping container doesn't sound appealing, but mobile crash pads are popping up at the summer's biggest events
Arts and Entertainment
'Old Fashioned' will be a different kind of love story to '50 Shades'
film
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Arts and Entertainment
Smart mover: Peter Bazalgette
filmHow live cinema screenings can boost arts audiences
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Project Manager (HR)- Bristol - Upto £400 p/day

£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

Day In a Page

Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
How live cinema screenings can boost arts audiences

How live cinema screenings can boost arts audiences

Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
Shipping container hotels: Pop-up hotels filling a niche

Pop-up hotels filling a niche

Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
Native American headdresses are not fashion accessories

Feather dust-up

A Canadian festival has banned Native American headwear. Haven't we been here before?
Boris Johnson's war on diesel

Boris Johnson's war on diesel

11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
5 best waterproof cameras

Splash and flash: 5 best waterproof cameras

Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

Louis van Gaal interview

Manchester United manager discusses tactics and rebuilding after the David Moyes era
Will Gore: The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series

Will Gore: Outside Edge

The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series
The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz