View from City Road: No feelgood factor in wage packets

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It has become something of a cliche that this is not a 'feelgood' recovery. More evidence of this was on display yesterday in the form of revised gross domestic product figures. While continuing to suggest that growth this year will be much stronger than the Treasury is officially forecasting, they go a long way to explaining why few of us are feeling the benefit.

One statistic in the detail sticks out a mile - in the second quarter income from employment rose by a minuscule 0.1 per cent. That is the slowest quarterly gain since the first quarter of 1967, or the worst for a generation.

In part this is a reflection of bonus payments received during the first quarter falling out of the equation. More broadly it reflects a persistent squeeze on pay despite the end of the recession. While unemployment stays relatively high, this is unlikely to change.

The miserly improvement in incomes contrasts strongly with the swollen gross trading profits of companies. They soared 7 per cent to the highest level ever. Meanwhile investment has remained relatively subdued - it fell 0.3 per cent during the quarter - with companies apparently still keener to pay down debt than finance new projects. The Bank of England's insistence that companies should accept lower rates of return on their capital spending because we are now in a new era of low inflation has so far fallen on deaf ears. Business leaders have heard it too often before.

All this contributes to a picture of corporate Britain busily feasting on the spoils of recovery while the rest of us continue to starve.

None of it will encourage the Government to believe its economically sound pursuit of low inflation is politically the correct policy to follow. In spite of the Chancellor's midsummer commitment to ending the cycle of boom-to-bust, the political pressures to do otherwise remain mighty strong. If employers do not become significantly more generous as the election looms, then Kenneth Clarke will be sorely tempted to compensate with tax cuts. Certainly he will resist strongly any pressure from Eddie George for a pre-emptive rise in interest rates before the onset of winter.