Not wishing to follow in the footsteps of the much-lampooned Norman Lamont, the Chancellor et al carefully avoided talk of green shoots yesterday. Comments on economic growth figures showing the fastest rise for nearly two years were, instead, models of restraint.
In private, however, George Osborne will be cock-a-hoop that prognostications of triple dip have – momentarily at least – been laid to rest. Not only did the economy scrape together 0.3 per cent growth in the first three months of 2013; according to yesterday’s initial estimates, the second quarter saw expansion increase to a respectable 0.6 per cent. Cue sighs of relief as the Coalition banks the political dividend from evidence that, contrary to critics’ claims, austerity is not a one-way ticket to recession.
Measured official reactions spring from more than just a desire to avoid Lamontian overconfidence, though. They also recognise that, even if the current tentative improvements do presage an enduring recovery, there is a long, long way to go yet. Only half of the economic ground lost to the financial crisis has been made up so far, leaving output still more than 3 per cent below pre-crisis levels. Equally, the unexpected resilience of the labour market has come at a cost. Despite persistently high inflation, wages have been held down, dragging real incomes back to levels last seen a decade ago. Those on benefits or receiving tax credits are even more squeezed. Gross domestic product may be growing, but the majority will hardly notice.
The length of the road ahead is not the only crimp on the Chancellor’s triumph. His much-vaunted plan to rebalance the economy away from services and consumer spending and towards investment and exports is also making slow progress. That all sectors, including construction and manufacturing, are – finally – on the up is some hope that the latest improvements may be sustainable. But services are still dominant and business investment levels are actually falling, despite the vast stockpiles of cash on company balance sheets. Once again, consumer spending is the engine of growth. So much for the end of the bad old days.
Mr Osborne is no passive bystander. Unable to kick-start growth by boosting public spending or persuading business to invest, the Chancellor turned to the housing market – and with no little success. Since the introduction of “Help to Buy” in April’s Budget, activity has increased and prices risen. The politics are clever, giving an (albeit chimerical) lift to consumer confidence – of which we are already seeing the evidence – while targeting precisely the aspirational voters needed to win an election. The economics are altogether more dubious. The Chancellor hopes that the immediate lift will, in turn, boost more wholesome and sustainable growth – in business activity, investment and so on. But any number of economists, not least the outgoing Governor of the Bank of England, consider the gamble a reckless one.
Nor is a reinflating property bubble the only threat. With incomes depressed, many households are relying on rock-bottom interest rates to make ends meet. As the economy improves and rates rise, the pressures may become unbearable. And then, of course, there is Europe. Although nine months of calm in our largest market has helped restore confidence, the euro crisis is far from solved and many of the trickier issues are merely on ice pending German elections in September. It is to be hoped that the worst is over, but it is by no means certain.
None of this gainsays the good news. After five years of torpor, all and any signs of economic life are welcome. But signs of life are not the same as recovery.