What a difference 3 months makes.
As late as 24th April, the fear was the UK economy might be slipping into a ‘triple dip’ recession. That was a bullet dodged. Then a month ago, on 27 June, we discovered the ‘double dip’ recession never actually happened after all. That was a bullet extracted.
Today, the Office of National Statistics has announced GDP growth increased by 0.6% in the second quarter of 2013. The smile of relief has become something more genuine.
No-one should get too carried away. The economy is still significantly smaller than it was before the crash (GDP is 3.3% lower than it was in 2008). The recovery has not been geographically evenly spread: London is booming, while the rest of the UK, especially the North of England and Midlands, are not. There is still the chance that external crises in the Eurozone or elsewhere might set us back. This is the slowest recovery from a recession in a century, longer even than in the 1930s.
What is encouraging is that growth seems to have been more evenly spread across all the different sectors which make up the economy: manufacturing, construction, production, agriculture — all grew. True, this is recovery from a low base. But it is now, most definitely, a recovery. And that’s not something anyone would have dared predict even three months ago.
How does all this affect politics? The conventional assumption is it will benefit the Coalition, and most especially the Conservatives. The arguments about whether the Coalition’s policies have hindered recovery will fade if and when growth begins to feed through into rising real household incomes in the next year or so. Labour crashed the economy, the argument will go, the Coalition has started to mend it. The Lib Dems will seek to claim our portion of credit for the ‘stronger economy’, while warning voters you can’t trust the Tories with creating a ‘fairer society’.
Probably convention is right. However, a return to strong growth (relatively speaking) may actually suit Labour. The most propitious circumstances for the Tories at the next election would be if they could point to a fragile economic backdrop, with growth teetering. Then Messrs Cameron and Osborne would play the ‘hold onto nurse for fear of something worse’ card which John Major successfully deployed in 1992. But if the economy is genuinely back on the road to recovery by 2015, then voters may feel safer turning to Labour, as happened in 1997.
Historical parallels can eclipse as much as they illuminate. In 1992, John Major’s style of government, after a decade of Mrs Thatcher, felt fresh while Neil Kinnock seemed stale. In 1997, it was Tony Blair who looked like the future after 18 years of continuous Tory rule.
In 2015, David Cameron, who by then will have been his party’s leader for a decade, will be looking to form his first majority Tory government. Which will he appear: fresh or stale? It won’t be gratitude for a recuperating economy that will win it for him; victory will depend on him showing a true hunger for a second term. The question is: has he got it in him?
* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.
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15 Comments
Both Liberal Democrats and the Tories will go into the election with the message that Ed Balls/Labour’s only answer to unsustainable debt was to borrow more. I do not think this will suit Labour.
To maintain this message, the economy has to continue to grow, which with perhaps a bit of a wobble, it will. One thing all governments, including the last, have been able to achieve, in the run up to an election, is a headline growth figure. How the economy manages 2015-17 is more uncertain (I strongly doubt a referendum will take place in 2017 whatever the outcome of the election).
On the effect of the economy, I think Stephen is being over pessimistic and a very obviously fragile economy will not be helpful to Lib Dems. Given that we lost seats, while gaining votes in the last election, a slight tilt to Labour would actually be more helpful to Lib Dems. The better the Conservatives do the more seats we will lose.
Lib Dems will need to project a message that agrees with the Conservatives on why Balls was wrong and would have done worse, but emphasises how Lib Dems have curbed the worst excesses of the Tories. For this message, we do not want to see destabilising crises in the NHS and the benefits system; we need the EU in steady growth and the student fees and loans system to fade as an issue.
Others might add other weather vane issues, but whilst there are many things that can go wrong, I do not think an improving economy is one of them.
The evidence is actually pretty clear that voters usually reward growth. The comparison with 1997 is pretty daft, its hard to remember now but Blair was one of the most popular Party Leaders ever – he may have been a con-artist but he was a very good one. Labour had silly poll leads – typically averaging over 20% compared to 6% now.
When was the last time major figures in The Labour Movement talked about breaking the Labour-Union link ?
Martin
So we are not borrowing at the moment then?
Paul Barker
http://www.guardian.co.uk/news/datablog/2009/nov/25/gdp-uk-1948-growth-economy
Major lost in 1997 despite economy growth from 92-97, and also the economy was growing in 2010 when Labour lsot – so that is the last two election cycles where you are wrong.
I also do not see the relevance of the Labour leads in 97 when compared to now – you are comparing apples with pears (again!)
It needs more than this to say we are recovering, how much of this is due to another property-led boom in the South and remember the amount of liquidity the government has been pumping in via QE. If we look at business investment and business lending it is still very week.
@paul barker
Major got hammered in the 1997 election partly because of the perception of economic incompetence following Black Wednesday almost five years earlier. The economy was doing rather well by 1997 but it wasn’t enough to change that perception.
In addition to the below-forecast growth, the coalition has failed to deliver on the target of eliminating the deficit by 2015. Meanwhile, people are getting poorer as wage inflation lags price inflation. How much does a 0.6% increase in GDP really matter to people against that backdrop?
Why would the voters be grateful? This parliament has been marked by the most staggering economic mismanagement. The coalition inherited a growing economy and promptly tanked it. That it’s finally managed to crawl forward despite the mismanagement of Osbourne et al is hardly a glowing recommendation to re-elect, is it?
In no particular order:-
1. The second quarter growth figures are good.
2. I watch Bloomberg News and from the reports they produce, it was clear to me 6 months ago that the UK economy was coming out of recession very slowly. Only if you listened only to the BBC, read British newspapers (except of course for the business pages) and Ed Balls would you have thought the opposite.
3. In economics, confidence is all, so Osborne gave in to the temptation to encourage house buying. Rising house prices are probably one of the biggest contributions to confidence in the UK. If he continues with this policy unchanged up to the election, the next Government will have to deal with another downturn.
6. Sales of cars have been increasing for 6 months
7. It is a well kept secret, that Osborne, while arguing strongly (and supported by Ed Balls) that he was sticking to Plan A
he has actually been running a Keynesian deficit for the last 2 years and is in effect following the Alistair Darling plan to halve the deficit in this parliament.
8. The growth so far has been driven by services. Manufacturing, construction, capital investment and exports need to be encouraged to pick up over the rest of the year. The schemes for apprenticeships is great in this context. There are encouraging signs that in these areas the situation is continuing to improve so we should continue to get some more growth. Confidence is everything (I have said that before)
9. Again, you would never believe it from the British media, but things are getting less bad in the Eurozone, and our exports will pick up very slowly there. At least they should not get worse.
10 Inflation is the big bad wolf and who knows where that will go.
11. Things LibDems should campaign on a) more emphasis on the regions because growth is not uniform across the country b) release Councils to build more social housing c) increase the minimum wage, but IMPORTANTLY, ENFORCE the minimum wage across the economy
12. Put the good news on a piece of paper and stick through letterboxes and the next election will take care of itself, ‘A stronger economy in a fairer society’ is simple and says everything we want to say about the economy in 7 words.
I think the political analysis is diverging from sound economic analysis. I’m not surprised.
Forgive me for being cynical but I seriously doubt any Chancellor can tank an economy with the amount of economic stimulus ours has received. The biggie is how to be honest with voters about what we do about easing ourselves off stimulus, eg how do you reward savers and pensioners? How would a lib dem chancellor sell it to bond markets without denting borrowing?
Don’t delude yourselves about the political bounce from an economy starting to turn around. The question is whether it is finally changing into an economy with sustainable growth driven in all of the regions. The recession pummelled the weaker regions of the UK. No point in policymakers dancing in the halls if they can’t figure out how to stop that from happening again. Number 1 on any sensible economic policy priority is whether productivity is improving.
Finally for all the lurid ‘green shoots’ headlines by lazy journalists, you should stop and consider whether this growth is benefitting households. I don’t quite mean in terms of distribution of the fruits of growth. What I mean is whether living costs are being contained. Most households over the last 6-7 years have been exposed to severe rises in the costs of living, particularly working households. Its plausible that the top 15% income brackets of households are more insulated from those below. But its only a matter of time before they feel it too. Tomorrow’s politicians need to smarten up for a post 2015 landscape and by that, I mean figuring out how to contain rises in the costs of living, working (and in some cases dying) in the UK economy. You can’t fool every household with illusory wealth and certainly not enough to win you an election, even if it may win you the South East
With regards
@ Jack
“The coalition inherited a growing economy and promptly tanked it”
You’ve got it totally wrong there, Jack. The economy in 2010 was solely being driven by Labour having ramped up the deficit by an extra 3% of GDP in one year to over 11%. That was simply not going to carry on, even if Labour had been returned to government. So to say it was “growing” while failing to mention why it was “growing” is frankly a bit disingenuous.
You have also failed to mention the Eurozone crisis, which knackered our exports from 2011 onwards, high oil, commodity and food prices, which cut consumers’ purchasing power, plummeting North Sea oil and gas production, as well as massive consumer debts built up before 2008.
Attributing slow growth solely to the fact that the deficit had to be cut is to ignore everything else that was going on at the time. Under the circumstances, it’s a miracle there hasn’t been a double or triple dip.
Sadly, the current upturn is mainly due to consumers dipping into their savings rather than carrying on paying down their huge debt mountain. With the Eurozone still deep in crisis, exports are not making much of a contribution and businesses are still too worried to invest yet.
As is becoming clearer over time, the real underlying situation left behind in 2010 was even more dire than anyone realised at the time and it will take decades to repair the UK economy. The point is, the Tories want to carry on compounding the mistakes of the past, with even more privatisation and deregulation, while at least the Lib Dems have some ideas about how the government can work to rebuild the economy in a constructive way.
We should be focusing on what the Lib Dems are doing to reconstruct the UK economy (training, green investment, regional development, industrial policy, banking reform etc.) and contrast that with the Tories and their obsession with letting the free market rip, which has been shown to have done so much damage.
Most governments within sight of a general election, devise ways of pumping cash into the system, to create a feelgood factor. The real question that has to be asked, is whether this is growth or a bubble forming?
Lord help those Help to Buy ‘victims’, that purchase over inflated value, housing at 95% LtoV, when the scheme ends? But of course Osborne and Alexander don’t care about the fallout from that mess, as long as it gets them votes in 2015.
The real problem for UK households’ living standards is that real wages are not rising and unless there is a real boom in the jobs market, which is able to absorb both our own unemployed and the large numbers of workers coming in from other countries, that is not going to change soon. According to the Office for National Statistic, in the past year, only 192,000 extra uk-born workers have found jobs, compared with 225,000 non UK-born workers. That is at the heart of the living standards problem: employers don’t have to increase wages by 4-5% a year as they used to before the crisis because they can find all the workers they need while only giving 1-2%, if that. Sorry if that may seem unpalatable, but those are the facts. The only way to solve this is to improve skills to make UK workers more employable in higher paying jobs while reducing taxes on the lower paid.
This may seem a little off topic, but in consideration of growth and of companies that are providing that growth, is it just me, or is anyone else deeply troubled, and sceptical, by the rise and rise of G4S? After their Olympics fiasco, and their overcharging, and yet still the Governments preferred contractor?
At this rate of selling off, and outsourcing, I think the question of who will be the government in 2015 is quite irrelevant. What we need to worry about is 2020, and the outsourced installation, of Her Majesty’s Government G4S?
/ sarc off /
There is a point above about stagnancy of real wages which is part of the flipside of rising living costs. Of course, you can extend the analogy to cost pressures in the industrial sectors and thereby our competitiveness. G4S and other outsourcing comes into play here because I don’t believe I’ve seen evidence that their delivery has helped competitiveness in the non-tradable sector of the economy.
I may get in trouble for this and you may have to Forgive me of drifting both off-topic and off-forum but there is a really interesting discussion on a tangential theme going on in ‘the Other Place’ about growth. It appears a consensus is there which rejects unevenly distributed growth and bubble-inducing policies. Worth a few minutes of your time
http://conservativehome.blogs.com/thetorydiary/2013/07/by-mark-wallacefollowmarkon-twitter-as-i-wrote-yesterday-06-growth-is-good-news-but-must-be-handled-carefully-by-the-ch.html
sfk :
Your diverting off topic somewhat, was probably my fault, and I take the blame if it was so? But let me bring this topic back to this growth (0.6%), that we are witnessing, and a dissection of whether it is ‘real’ growth?
The real fear is that any sign of growth (which is appearing), in developed western economies, goes hand in hand with their various stimulation, money creation, and other various QE structures. And there is good reason to believe this. That money creation from thin air, pumped into a flat economy, is bound, sooner or later, to produce ‘activity’ that appears to be healthy growth. The evidence of this worry, can be seen in Ben Bernanke’s dithering, on how (and if !), he can taper his $85 billion/month QE, away from the ‘voracious beaks’, of the banks and money markets, without bringing growth in the USA to a halt?
I believe this UK (0.6%) is indeed ‘pump primed’ growth, and a direct result of QE. Of course Keynesians believe that such pump priming, is in itself innocuous, as it will lead to a kind of self-siphoning, of economic confidence, resurgence of ‘animal’ spirits’, and acceleration of progress towards ‘good’ growth and Business as Usual.
I’m not convinced. And I suppose, we will only know the truth about growth, when Bernanke and Carney, bite the bullet and switch off the printers. If they dare?
@SFK
“It appears a consensus is there which rejects unevenly distributed growth and bubble-inducing policies.”
They may “reject” unevenly distributed growth, but the Tories have no policies to rebalance it and, if left to their own devices, would worsen the situation with their “hate the state” let the free market rip ideology. For the Tories, the only answer is even more of the same policies that got us into trouble in the past.
It is good that the economy is growing and if it manages to get above 2% a year there should be a feel good factor. In a year’s time with economic growth of say 2.5% I would expect wages to increase. Therefore there is a possibility that by May 2015 people will be feeling better and this may lead to increased popularity for both us and the Conservatives. I am not convinced that this up turn would lead to a Labour victory (like 1997 according to Stephen Tall).
Politicians have been talking about rebalancing the economy for over thirty years and I am not convinced they can do it. However I agree with David Pollard that we should do something about the lack of growth in most regions. I also support his call for more social housing building and increasing the minimum wage but I am not sure they would help growth in the regions. I am not aware of the lack of housing in regions outside of southern England but have an impression that there is no shortage of houses in the north because large number are not occupied and this is because people have been moving south to find work. Maybe the answer lies in the government ensuring that the banks it controls invests more money in regions outside of London and the south-east. Would it help if private house building was restricted in the south so companies would have to setup further north because that is where the labour is?
There are concerns being raised about the Help to Buy scheme feeding housing prices and this could then lead to a collapse and the economy would then falter or even collapse again. The Liberal Democrats in government should try to modify this policy to try to avoid this future problem. I have even heard concerns that increasing the money supply will have to stop someday.
RC states nearly 54% of jobs go to non-UK born workers however between March 2012 and March 2013 423,000 more people were in employment, the number of UK nationals in employment increased by 365,000 and non-UK nationals by 58,000 http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/may-2013/statistical-bulletin.html#tab-Employment-by-nationality-and-country-of-birth–not-seasonally-adjusted.
Therefore only 13.7% are non-UK nationals. However all these people in employment should have a positive impact on the economy.