There is no denying that the economy has a newly rosy hue. Growth has outstripped predictions for two consecutive quarters, business expectations are on the rise and consumer confidence is at a three-year high. Amid the surge of healthy indicators, forecasts for the year ahead are busy being revised upwards, and there is even talk of Britain having reached the “escape velocity” needed to leave post-crisis stagnation behind at last.
The Chancellor certainly thinks so. At a (symbolically pertinent) office development in east London yesterday, George Osborne tried not to sound triumphant. But his message was clear. “We held our nerve when many told us to abandon our plan,” he said. Now, though, “Britain is turning a corner” and “those in favour of a Plan B have lost the argument”.
In the face of economic necessity, The Independent has consistently made the case for fiscal discipline to rein in unsustainable public debt. We also concur with the analysis that Britain’s unexpectedly slow recovery owes more to global inflation, the euro crisis and ongoing issues with the banking system, than it does to Treasury austerity. But just as proponents of a Plan B overplayed the bad times – as recent statistical revisions eliminating the corroborative “double dip” make clear – so those on the other side of the argument are in danger of overstating the recovery.
True, statistics across the economy – from manufacturing to regional business activity to job vacancies – are on the up. But the improvements are from a very low base. The labour market still includes large numbers of people working part-time, industrial output is well below what it was, and, most concerning of all, business lending is actually falling. Not only are we far from the sunlit uplands, there is also no certainty that the path there will be a straight one. Slowing emerging economies take the edge off inflation but may imperil global recovery. Equally, the euro crisis paused, thanks to the reassurances of the European Central Bank; but the underlying issues are still far from resolved.
The domestic factors driving the current recovery also merit some scrutiny. Current confidence rests in no small part on a renewed buoyancy in the housing market, itself an effect of the Chancellor’s Help to Buy scheme. Thanks to government-supported mortgages, prices are rising, lending is booming and warnings of another bubble are – rightly – becoming more urgent. Mr Osborne put up a spirited defence yesterday, pointing out that prices and transactions are still well below peak levels. Perhaps. But the fact that the bubble has not yet reached its previously gargantuan proportions is hardly proof that it is no bubble at all.
This is no counsel of despair, only a counsel of caution. While we may be turning a corner, it is but one of many. And – on housing at least – the Chancellor is not the safe pair of hands he would have us believe.