It is some considerable time since the British economy was able to boast simultaneously falling unemployment, subdued inflation and rising growth. Not just for the short term, either. The Bank of England said this week: “In the United Kingdom, recovery has finally taken hold. The economy is growing robustly as lifting uncertainty and thawing credit conditions start to unlock pent-up demand.”
What could possibly go wrong? In the short run – the politically crucially period up to the general election in 2015, that is – not that much. The Bank’s Governor, Mark Carney, may vary the tone of his “forward guidance”, but the broad thrust of the message is clearer and more consistent than the commentators give him credit for. Any rise in interest rates is not going to come soon; they will remain at historic lows, below inflation, and a move will be well signalled. By that stage, wages may be moving ahead of inflation, and with personal taxes past their peak, many voters will be able to feel a rise in their living standards. The Coalition parties’ manifesto pretty much writes itself: we cleared up Labour’s mess, and saved the economy; now let us finish the job.
The British public will realise that many of the jobs being created are part-time, poorly paid and taken only because there is nothing better around. There’s nothing wrong with having people in such jobs – but we should be realistic about what it actually entails. The economy will take years to return to the level of output it enjoyed before the Great Recession, and every previous recovery has come more quickly than this one. Such growth as can be seen is at least partly down to people and businesses catching up with purchases and investment postponed in the slump: an “inventory recovery”, in the jargon.
All of this, as ever in the case of Britain, leaves the longer-term weaknesses and imbalances in the economy pretty much untouched.
Companies are still too nervous to invest in the future in this country, so we remain reliant on consumer spending to boost our fortunes, and that has been an unreliable engine of growth in the past. Our exports are still too oriented towards the eurozone. Our productivity and competitiveness lag even supposedly troubled European neighbours, let alone the emerging economies where a growth rate of 2 to 3 per cent would be seen as a national disaster. Our banks are still sickly and unwilling, or unable, to lend without the artificial support the taxpayer is offering, via the Bank of England’s intravenous drip of easy money. None of these fundamental weaknesses have been resolved by the Government’s often timid policies to boost growth.
So this not quite a “bread and circuses” recovery, but it is one that is slighter and more meretricious than the authorities might have us believe. From his Autumn Statement on 5 December the Chancellor has the opportunity to hold out the promise of tax cuts to voters who really need convincing that it’s for real. That scenario is a familiar one in British history: in that sense, things are indeed getting back to normal.