Why I think all the doom and gloom about the state of our economy is just plain wrong

Yes, interest rates will rise again today but our City Editor explains....

BRITAIN’S next Prime Minister, be it Liz Truss or Rishi Sunak, faces some monumental challenges. There is the ongoing disruption from cantankerous, politically motivated unions; the return of double- digit inflation and a misfiring NHS.

Moreover, as the Bank of England belatedly steps up the fight against surging prices with another interest rate rise today, many of us will soon be wrestling with more expensive mortgages.

Yet the idea that the UK is facing some kind of existential economic crisis, a return to the 1970s or even worse the depression years of the 1930s is, quite frankly, tosh. Such a notion is being spoonfed relentlessly to the public by broadcasters who should know better, disgruntled liberal newspapers and thinktanks with an axe to grind.

Buoyant

One could argue that organisations such as the Resolution Foundation and the National Institute of Economic and Social Research (NIESR) are only doing their job by pointing out that the surge in fuel prices will drive large swathes of the population into energy poverty (defined as spending more than one-tenth of their income on electricity and gas).

But in focusing on these negative prognostications they ignore fundamental truths about the UK. And the idea the Tories are doing nothing to help the needy is untrue.

In May, the then Chancellor Rishi Sunak announced £15 billion of assistance to help the poorest sections of society pay their energy bills, and left the door wide open to further assistance.

Indeed, so far this year, aided by buoyant tax income (more of which later), the Government has poured £37 billion back into the economy, aimed primarily at the lower paid, to help them through the crisis.

This would have been impossible back in the 1970s — which is where so many Leftwing commentators insist we are headed — when the UK fell under the controlling influence of the International Monetary Fund.

The then Labour Chancellor, Denis Healey, was ordered by the IMF to make savage cuts in the size of the public sector and impose draconian limits on the creation of credit.

Indeed, there is a disturbing determination among some Government critics to misread and misinterpret what they are being told or what they can see with their own eyes.

Take, for example, Britain’s biggest High Street banks. This week they all announced booming profits for the first six months of the year.

Some of this may be due to rising interest rates which allow banks to widen the gap between what they charge borrowers and savers. But, historically, banks offer an early-warning system as to the state of the broader economy.

In my conversations with bank chiefs, almost all reported that the signs of stress they might have expected from customers from the cost-of-living jump is not being seen at all.

Upbeat

There are no signs of a dangerous build-up of borrowing. Alison Rose, chief executive of NatWest, noted the only exception was the farming community — which faces soaring energy fertiliser and water bills — to whom NatWest is offering special facilities.

As critical as agriculture is to all of us (I say this as the son of a farmer), there is no escaping the fact that farming contributes just 0.5 per cent to Britain’s national output.

So puzzled were journalists on the Guardian’s financial pages by the optimism of the High Street banks that they chose to parody it with a headline: ‘Crisis, what crisis?’

Among the conclusions reached was that those hardest hit by the fuel bills possibly ‘would not have qualified for [bank] loans’ anyway. But another reason — one not spelled out by Guardian journalists — is that Government assistance to this group has cushioned the blow thus far.

Banks are no one’s favourite institutions and this paper has been a fierce critic of High Street branch closures, the determination to force customers online and obscene charges for services such as overseas transfers. Yet as readers of the runes of the economy, banks have access to enormous amounts of data.

Would their chief executives be so upbeat if they believed the economy to be on the edge of a precipice?

In fact it was Lloyds boss Charlie Nunn who recently observed that with the negativism of the public debate the country was in danger of talking itself into recession.

Readers may be surprised to learn that although large parts of the world tumbled into recession in the first half of this year, including the mighty United States, the British economy is still expanding.

Of course, it may not last; we are, after all, an open trading nation dependent on expanding overseas commerce for prosperity.

But new data just released do indicate that while the UK’s services sector, the powerhouse of the economy, is slowing, it isn’t shrinking.

In July it was at its weakest level since February 2021, but had been growing for 17 months in a row and is still well above the point at which a recession is signalled.

The same business survey also revealed that after the ‘ inflationary burst’, input prices — the cost of the ingredients for every business whatever the sector — are rising at the slowest pace for eight months. The great inflation surge is by no means over but the pace of price increases is decelerating.

Among the perennial postBrexit critics of Britain has been the news agency Bloomberg, widely read on every financial trading floor in the world. In an assessment released this week it noted the UK entered the current costof-living crisis ‘in better health than many of its G7 peers’.

The UK has cut its overall debt burden since 2016 and its annual deficit — the difference between what the Government raises in taxes and charges and spends — ‘is smaller than any of the US, France and Italy.’

Faith

Moreover, Britain goes into the cost- of-living crisis with nearly full employment. The more people in work ,the more National Insurance and income tax contributions flow into the nation’s coffers and the more there is to spend, pushing up VAT receipts.

All of this tells us why the Liz Truss manifesto for rolling back baked-in-the- cake tax increases is far from the fantasy economics which her detractors claim it to be.

If the banks are really lying about the state of the economy and the UK is in the midst of some terrible crisis, one has to ask why foreign investors are keeping faith.

Instagram (owned by Meta/ Facebook) is about to make the UK its biggest hub outside of its native California, hiring 4,000 fresh recruits.

International home buyers are flooding back into London’s most expensive neighbourhoods, with 48 per cent of available properties falling into their hands in the first six months of 2022.

And despite the steep rise in interest rates, the Nationwide reported last month that the market was up 11 per cent year- on- year. In Britain’s home-owning democracy, for those already on the housing ladder that creates a sense of wellbeing rather than fear.

Of course, nothing is perfect and there is turbulence ahead, but the narrative that has taken hold about the state of the economy is plain wrong.