Each new tranche of data on the economy prompts squeals of excitement. Yesterday’s trade figures, which showed a 6 per cent rise in exports over the three months to June, were the latest official release to prompt hallelujahs. But such jubilation is premature.
The signs of a recovery after three years when economic output has stagnated are welcome. But we are still a very long way from being able to talk about “booming Britain”. National output remains more than 3 per cent down on early 2008. And output per head – a more relevant measure given the rise in the population – is some 7 per cent below where it was five years ago. We are only beginning to scramble out of a deep hole, and there are strong reasons to doubt how sustainable this pick-up will prove to be.
The recovery has been driven by rising household spending and growth in the services sector. The rebalancing from consumption to manufacturing and exports that the Coalition promised in 2010 has not happened. Indeed, George Osborne, with his plan to pump up the housing market through loan subsidies, seems to have more or less given up on rebalancing.
So far, this recovery has no visible means of support. The wages of most Britons, when adjusted for inflation, are still in decline, as they have been since the financial crisis. The increase in private consumption registered in the first quarter of the year was funded by households cutting back on their saving rates. That cannot go on for ever. Real wages need to turn positive. Business needs to start investing, and export markets need to start humming.
There remain powerful headwinds too. Half of the Government’s planned spending cuts are yet to be implemented. Those cuts will suck spending power out of the economy year after year and result in hundreds of thousands more public sector losses.
Confidence matters in modern economies. But happy talk can easily backfire if growth does not materialise. We are not out of the woods yet, and if our policymakers are sensible they will give short shrift to those who say that we are.