The Guardian view on the Brexit economy: the UK risks recession
There is more than a little truth in the idea that those who do not learn from history are condemned to repeat it. The global financial crisis was meant to lead to an economic and political reckoning for neoliberals carried away with their own ideology. They made all sorts of unrealistic promises that even a brief reflection would have shattered. Yet more than a decade on, the reckoning is far from over. This is especially true in the United Kingdom, whose prime minister peddles a sunny optimism in the merits of splendid isolation to fuel his Brexit fantasies. History ought to be a protection against this stripe of reckless utopianism. Yet in a world of instant headlines and short-term hits, who has time to dwell on the inconvenient truths? Still, dwell we must. David Blanchflower, the US-based economist, points out that thanks to a short-sighted austerity policy this has been the slowest economic recovery for 300 years. While politicians trumpet near-record levels of unemployment and wage growth, they fail to mention that the latest figures show that average earnings, when adjusted for inflation, stand today at £502 a week in total pay, £23 lower than in February 2008.
There’s a tendency to put the best possible spin on GDP data, despite this being notoriously difficult to forecast. This week it was reported that the UK’s economy grew faster than expected in July, with breathless reporting that despite earlier concerns there was now only a 10% chance of recession. Yet in 2008 the forecasts for GDP were all of rosy growth in the UK. It was only a year later that they were revised down to show what was obvious: that Britain was in a slump. Crashing a car because you were looking backwards rather than forwards is no excuse. Professor Blanchflower became, briefly, a household name a decade ago. He sat on the Bank of England’s monetary policy committee and argued that the US economy in April 2008 was in recession and the UK was about to go into one. To alleviate the pain, the economist argued for swift and large rate cuts. For his troubles he was called “bonkers”. He told his fellow economists at the Bank that they were “fiddling while Rome burns”. They fiddled; the UK economy almost burned down.
The concern is that policymakers today are in denial, that they rarely acknowledge possible weaknesses in their views or, other than grudgingly, admit that they helped to cause and prolong the crisis with their ideological approach. Remarkably, some members of the MPC still doubt Professor Blanchflower’s early insight. This is a concern. The economic skies are darkening. Economic confidence in virtually every UK sector is dropping like a
stone. Surveys show people’s fear about worsening employment prospects as well as their own financial situation. House prices have fallen across the south of England for the first time since 2009. This is against a backdrop of a slowing US economy, an environmental crisis and a global trade war. There is never a good time for Brexit, but when teetering on the edge of an abyss it is not a good idea to jump off without a parachute. Ministers have done the right thing in increasing funding for schools and hospitals and not worrying about the fiscal deficit. The government will need to start splurging cash to allow the already heavily indebted private domestic sector to save, including the 8.3 million people who cannot keep up with their bills. Trying to run up a surplus would push Britain into a recession. The UK’s economic model is busted, with the wealthiest seizing a larger share of national income and the young set to be poorer than their parents. We have failed once before to fix it. Let us not miss the opportunity to do so again.
• This article was amended on 11 September 2019. Average earnings, when adjusted for inflation, stand today at £502 a week in total pay, £23 lower than in February 2008 – not “£525 a week in total pay, £22 lower than in February 2008” as earlier stated.