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.

Pro-Russia rebels guard a train containing the bodies of victims of the Malaysia Airlines flight MH 17 crash in Torez, Ukraine
Life and Style
Child's play: letting young people roam outdoors directly contradicts the current climate
lifeHow much independence should children have?
Arts and Entertainment
Tycoons' text: Warren Buffett and Bill Gates both cite John Brookes' 'Business Adventures' as their favourite book
booksFind out why America's richest men are reading John Brookes
Sign here, please: Magna Carta Island
propertyYours for a cool £4m
Arts and Entertainment
Struggling actors who scrape a living working in repertory theatres should get paid a 'living wage', Sir Ian McKellen has claimed
Skye McCole Bartusiak's mother said she didn't use drink or drugs
peopleActress was known for role in Mel Gibson film The Patriot
Arts and Entertainment
Damon Albarn is starting work on a new West End musical
artsStar's 'leftfield experimental opera' is turning mainstream
Life and Style
Paul and his father
artsPaul Carter wants to play his own father in the film of his memoirs
Ben Stokes trudges off after his latest batting failure for England as Ishant Sharma celebrates one of his seven wickets
Arts and Entertainment
Members of the public are invited to submit their 'sexcapades' to Russell T Davies' new series Tofu
ebookA unique anthology of reporting and analysis of a crucial period of history
Sky's Colin Brazier rummages through an MH17 victim's belongings live on air
Arts and Entertainment
Keira Knightley and Benedict Cumberbatch star in the Alan Turing biopic The Imitation Game
arts + ents'The Imitation Game' stars Benedict Cumberbatch and Keira Knightley
i100... and no one notices
Arts and Entertainment
Friends reunited: Julian Ovenden, Richard Cant and Matt Bardock in rehearsals for the Donmar revival of 'My Night
with Reg'
theatrePoignancy of Kevin Elyot's play being revived just after his death
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Business Analyst (Systems/ Incident Analyst)

£40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Business Analyst r...

BA/PM - Client Data

£500 - £550 per day: Orgtel: BA/PM - Client Data London (Greater)

6449646 - SQL Developer - Ldn - £450pd

£400 - £450 per day: Orgtel: SQL Developer - Banking - London - £450pd Our cl...

SQL DBA - Banking - Gloucester - £400pd

£375 - £400 per day: Orgtel: SQL DBA - Banking - Gloucester - £400pd Our clie...

Day In a Page

Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn
Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Meet the man who doesn't want to go down in history as the country's last Scottish Secretary
Legoland Windsor's master model-makers reveal the tricks of their trade (including how to stop the kids wrecking your Eiffel Tower)

Meet the people who play with Lego for a living

They are the master builders: Lego's crack team of model-makers, who have just glued down the last of 650,000 bricks as they recreate Paris in Windsor. Susie Mesure goes behind the scenes
The 20 best days out for the summer holidays: From Spitfires to summer ferry sailings

20 best days out for the summer holidays

From summer ferry sailings in Tyne and Wear and adventure days at Bear Grylls Survival Academy to Spitfires at the Imperial War Museum Duxford and bog-snorkelling at the World Alternative Games...
Open-air theatres: If all the world is a stage, then everyone gets in on the act

All the wood’s a stage

Open-air productions are the cue for better box-office receipts, new audiences, more interesting artistic challenges – and a picnic
Rand Paul is a Republican with an eye on the world

Rupert Cornwell: A Republican with an eye on the world

Rand Paul is laying out his presidential stall by taking on his party's disastrous record on foreign policy
Self-preservation society: Pickles are moving from the side of your plate to become the star dish

Self-preservation society

Pickles are moving from the side of your plate to become the star dish
Generation gap opens a career sinkhole

Britons live ever longer, but still society persists in glorifying youth

We are living longer but considered 'past it' younger, the reshuffle suggests. There may be trouble ahead, says DJ Taylor