Growth, yes, but still a long, long way to go

There will be relief following this evidence that austerity is not a one-way ticket to recession, but the unexpected resilience of the labour market has come at a cost

Share

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.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Tradewind Recruitment: Intervention Teacher Required To Start ASAP.

£125 - £150 per day + Negotiable: Tradewind Recruitment: A 'wonderful primary ...

Tradewind Recruitment: Maths Teacher

£90 - £140 per day: Tradewind Recruitment: Our client is an 11-16 mixed commun...

Recruitment Genius: PHP / Drupal / SaaS Developer

£32000 - £36000 per annum: Recruitment Genius: A rapidly developing company in...

Ashdown Group: Application Architect/Developer - Peterborough

Negotiable: Ashdown Group: Application Architect/Developer - Peterborough, Cam...

Day In a Page

Read Next
Benedict Cumberbatch attends a special screening of his latest film The Imitation Game  

Benedict Cumberbatch race row: What's the actual difference between 'coloured' and 'person of colour'?

Matthew Norman
Pressure is growing on Chris Grayling to abandon the Government bid to advise Saudi Arabia on running its prisons (Getty)  

What in sanity’s name is Chris Grayling doing in the job of Justice Secretary?

Matthew Norman
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

Front National family feud?

Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy