Booming? No, but our economy is doing fine, thank you Allister Heath
Is Britain currently growing as quickly as it should, by rights, be doing? No. But is the consensus view of the current state of our economy far too pessimistic? Absolutely. The narrative is wrong. We are growing much faster than is usually realised or accepted. We are not booming but are equally nowhere near a recession. Things may change in future, of course, but the present is far, far rosier than all of the usual hysterical, doom-laden commentary would lead us to believe.
The old rule still applies: the received wisdom about the state of the economy is almost always wrong. In ordinary circumstances, it tends to be too bullish, and the longer an expansion goes on, the worst this gets. Immediately after recessions, the average forecaster tends to be too negative: we are backward-looking creatures, and find it hard to imagine how the future can differ from the immediate past. And these days, because close to nine out of 10 economists oppose Brexit, the consensus view is even more incorrectly biased towards pessimism.
If the National Institute of Economic and Social Research is right, the economy accelerated in the three months to the end of October, growing 0.5pc. This is better than the 0.4pc reported by the ONS for the third quarter and is perfectly respectable stuff. Take manufacturing: it is up for the fifth month in a row, and its annual growth rate is a very strong 2.7pc. As Barclays’ economic team points out, the trade balance improved in September. Exports grew by 5.4pc month on month, thanks in part to the cheaper pound, while imports grew by 0.2pc. I’m not claiming that all is rosy. Construction is suffering and has probably contracted for two quarters in a row. Output was down by 1.1pc year on year in September, dragged down by both commercial and dwellings. More broadly, I believe – even though there is no proof for this – that a combination of politically motivated negativity and genuine uncertainty as to what the final terms of Brexit will be has reduced activity in some areas, including in parts of services and manufacturing. The economy would be growing even more quickly without this. Yet, and crucially, much of this slowdown is due to the Government’s lack of leadership and general incompetence, and most, but not all, of this hit could have been avoided.
In any case, very little in macroeconomics is actually clear-cut. It may well be that the contraction in commercial construction is partly due to “uncertainty” as to the impact on the City, or it may be a rational reaction to the fact that we have full employment and that there may well be an oversupply of offices looming, regardless of Brexit. Part of the hit to dwellings may be due to a public sector retrenchment, and it is obvious that housebuilding is entirely unrelated to the referendum. With the right policies, including a greater allocation of land to building, continued access to labour, a new planning regime, radically different incentives for housebuilders and other changes, the UK’S private sector could easily be building twice as many homes a year. The war on diesel cars and on cheap car loans is clearly cutting the demand for vehicles; again, this has nothing to do with Brexit.
There is some Brexit-related drag on activity in banking, and some nervousness in other areas including aviation, car making, pharmaceuticals and energy. In every case, the worry is EU protectionism: Brussels is not interested in free trade per se, merely in imperialistic, heavily managed economic relations. It is threatening to withdraw licences that allow Uk-based firms to conduct business in the EU because it is only willing to tolerate imports if they are accompanied by regulatory control. It sees “trade” as a form of state-building; it cannot understand that genuine free trade is a mutually beneficial exchange that enriches both sides.
I’m not claiming that the UK is healthy in a long-term sense: we face immense, long-standing problems when it comes to tax, spending, regulations, productivity, skills, monetary policy and much else besides. Our actual extraction from the EU is bound to be painful in the short term as a result of Brussels’ selfdefeating protectionism. But we need to stop being so ridiculously negative about our current economic performance. It’s actually pretty decent. email@example.com
‘The received wisdom on the state of the economy is almost always wrong’