The economic week ended with a bang for HM Treasury. The Coalition’s own spin doctors could hardly have dreamed up a better scenario.
First the IMF, the world’s lender of last resort, upgraded its forecasts for UK economic growth to 3.2 per cent. Official figures showed the UK economy growing at a very respectable 0.8 per cent between April and June. We already enjoyed a comfortable lead in the 2014 Global Advanced Economy Growth Stakes. Now it looks like we’re going to canter home like Frankel on steroids.
Hot on its heels came shocking news from Royal Bank of Scotland, an institution which has had far too many dealings with lenders of last resort in its recent history.
Just days before the release of its full year results, the bank said its profits would be better than even the sort of optimist that thinks England can win the World Cup within the next decade could have predicted.
At this rate they’ll be tempted to swap the Christmas Cava for something fizzy from the French region of Champagne at Conservative Central Office.
They might be advised to keep it on ice. Their MPs would dearly love to be able to talk about “booming Britain” but the problem is that their constituents still aren’t feeling it it where it counts; in their pockets.
Economic growth is important, and certainly preferable to the alternative. It’s also handy that banks like RBS are making money again. Strong and profitable banks lend themselves to strong economies, although we should all pay due heed to chief executive Ross McEwan’s warning of “bumps in the road”. While his RBS is in profit, it’s nothing like a strong bank yet.
But when it comes to the standard of living for most of the citizens of this country 3 per cent growth is but a distant dream. Their incomes are still falling in real terms.
The latest official figures showed that pay, including bonuses, rose by a pitiful 0.3 per cent between March and May (0.7 per cent when bonuses are taken out of the equation). By contrast, inflation jumped to 1.9 per cent in June from 1.5 per cent in May.
The economy might be back to where it was before the financial crisis but we have an awfully long way to go before living standards have caught up.
Unfortunately, while we have growth we don’t have the sort of growth that is filtering through to ordinary people.
The Government argues that at least some of them have benefited from tax cuts, and that’s true. Millionaires, for example, enjoyed a 5p cut in the rate of tax applied to earnings above £150,000. The tax free allowance has been raised. But so has VAT. And benefits have been cut.
What the Chancellor has given with one hand, he’s taken away with another. They always do.
Falling unemployment should eventually push wages up. But even then there is a sting in the tail. The IMF’s forecasts, perhaps the RBS numbers too, will strengthen the case of the hawks on the Bank of England’s Monetary Policy Committee who have been calling for an interest rate rise.
If rising wages start to put extra pounds in people’s pockets, higher credit costs will take them right back out again. And with the recent figures showing the budget deficit remaining stubbornly high, there won’t be any fiscal relief anytime soon.
Yes we should be pleased that the UK is in recovery. There is no doubt we are in a much better place now than we were in the wake of the crisis. But the Chancellor or the Prime Minister should be careful not to sound too smug when they start reeling off lists of gaudy figures to show how well we’re doing. Because the average voter may very well ask why they aren’t getting a piece of the action.