Against neg­a­tiv­ity

The Daily Telegraph - - Business - Al­lis­ter Heath

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. al­lis­ter.heath@tele­

‘The re­ceived wisdom on the state of the econ­omy is al­most al­ways wrong’

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