A 'sustained recovery' begins in Britain

The government has declared that Britain is on the road to recovery. But will it last?

Chancellor George Osborne has declared that the economy is "turning a corner". A survey tracking activity in the service sector reached a seven-year high and a composite gauge of construction, manufacturing and services hit a record. Consumer confidence is at a four-year high. The latest Halifax release showed house prices rising at an annual rate of 5.4%. Unemployment edged down to 7.7%. Analysts are now pencilling in growth of 1.5% or more in the third quarter after a solid 0.7% expansion between April and June.

What the commentators said

We needed to beef up exports and investment after the credit-fuelled boom and bust in property. But there has been precious little evidence of that. Consumers have been dipping into savings to go shopping in the first quarter the household savings ratio was at its weakest since early 2009 and the government is reinflating the housing bubble through its Help to Buy scheme.

Meanwhile, said Allister Heath in City AM, the export revival isn't all it's cracked up to be. In the first two quarters, much of net exports' contribution to growth came from oil, which is in structural decline. The July trade data, meanwhile, undid the progress of the past few months. Investment is still very low, which bodes ill for future productivity. The budget deficit remains huge. "Yes, we're getting lots of growth again but nearly all of the old structural problems remain."

Note, meanwhile, that earnings growth is still below the rate of inflation, which means living standards are still falling, as Andy Bruce pointed out on Reuters.com. Consumers can't dip into their savings forever and house prices are highly unlikely to repeat their pre-crisis performance from today's overvalued levels. A flare-up of the euro crisis would undermine export prospects. By early next year, the economy's "rapid ascent" could "fade to a slow cruise".

Recommended

Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Spare us these desperate measures
UK Economy

Spare us these desperate measures

Struggling firms are trying to reinvent themselves. Some are going to have to get much more radical
21 Sep 2020
Universal Credit comes good
UK Economy

Universal Credit comes good

The government’s benefit reforms have been plagued with disasters since their introduction in 2013. The Covid-19 crisis, however, has revealed a posit…
21 Sep 2020
Bad data is driving fear of a second wave of Covid-19
UK Economy

Bad data is driving fear of a second wave of Covid-19

The recent spike in Covid-19 “cases” is very different to the original outbreak, says James Ferguson of MacroStrategy Partnership. The government need…
18 Sep 2020

Most Popular

The rising dollar is proving bad news for most other assets – will it last?
Investment strategy

The rising dollar is proving bad news for most other assets – will it last?

Precious metals, stocks and pretty much every other asset has taken a tumble as the US dollar strengthens. Dominic Frisby looks at how long this trend…
23 Sep 2020
The electric-car bubble could get an awful lot bigger from here
Renewables

The electric-car bubble could get an awful lot bigger from here

The switch to electric cars is driving a huge investment bubble. But that’s not necessarily a bad thing, says John Stepek. Fortunes will be made and l…
24 Sep 2020
Why you should stuff your end-of-pandemic portfolio with Chinese stocks
China stockmarkets

Why you should stuff your end-of-pandemic portfolio with Chinese stocks

For an end-of-pandemic portfolio, you need assets that can cope with today’s volatility. And that, says Merryn Somerset Webb, means Chinese stocks.
14 Sep 2020