UK shows its resilience
Zero growth or a flat-lining economy is not a good look, especially when one considers that UK output still hovers below pre-pandemic levels. Yet when one considers recent rhetoric about Britain, including the Bank of england’s November projection (since revised) of the longest recession in history and the IMF forecast of the worst performance among the G7 economies in 2023, last year must be considered a mild triumph.
The flaccid final quarter (in December, output slipped 0.5pc) means that Britain grew by 4pc in 2022.
As much as I disparage the Premier League approach to reporting economic data, that did make the UK the fastest growing nation, according to the IMF. That, incidentally, follows a 7.6pc climb in 2021 using IMF numbers.
There is a tendency in Britain to look on the gloomy side of things. Those of us who attempt to see the positives in life sciences, r&D, the City, creative industries and elsewhere are seen as hopeless Pollyannas.
Consider how battered the country has been over the last year. We have had three Prime Ministers and the alarming meltdown in markets during the Liz Truss interlude. In line with much of the world, the UK has absorbed unprecedented rises in fuel prices with a devastating impact on living costs. As the year progressed, trades unions sensed the vulnerability of government and launched into a ferocious series of strikes which have placed life and limb in danger and disrupted education at schools and universities.
And a series of ineffectual Tory administrations have failed to get to grips with the aftermath of Brexit, ranging from mundane customs bureaucracy to replacement of the eU Horizon europe science funding at the country’s top universities.
Broadcast reporting of economics and business does the UK no favours. For those listeners up early on Friday, when the latest
GDP output figures were to be issued, it was possible to hear voices almost salivating at the possibility of Britain in recession.
When newspaper headlines were scrutinised, a report (in this paper) based on the words of AstraZeneca chief Pascal Soriot, making a good point about the UK’s uncompetitive company tax system, was read with dripping scepticism.
The way the public finances (that includes tax!) is covered on the BBC is a case in point. The recently published report by Michael Blastland and Andrew Dilnot argued that too much of the lead on economic journalism came from the Westminster bubble. Too few of those reporting had any clue about how the numbers are computed.
FIrSTLY, it is often forgotten that borrowing numbers are the difference between two very big figures – how much the Government spends and how much is collected in taxes. They tend to be very lumpy and seasonal (tax collections are strong, say, in January because of self-assessment deadlines).
Secondly, although interest rate costs on borrowing are reported monthly, they are by no means spread evenly, and in the case of inflation-linked bonds can vary dramatically. Thirdly, what no one ever wants to recognise is that despite spooked markets in September 2022, the UK has the second lowest debt to GDP ratio in the G7, after Germany. That’s a league table that I can support.
It is critical that we aren’t fixated on forecasts. Writing in the FT this month, Nick Macpherson, former permanent secretary to the Treasury, rejected suggestions that Britain is in danger of regaining its status as ‘the sick man of europe’. He added that the recent IMF growth forecast is not totemic and, in a ‘world of small numbers’, no country will be satisfied with weak performance.
Which brings us back to the final quarter growth figures.
Services, the largest segment of the UK economy, dropped in December. The fall was driven by closure of the Premier League (because of the World Cup) and paralysis in health as a result of strikes.
Certainly, in London (and the data shows this too), there has been an observable buzz since the turn of the year.
We should remain sceptical about projections of dire prospects for the first quarter. The cost of living is a big blockage, but optimism that inflation should start falling is a positive. Moreover, the spike in mortgage rates could be over, giving the residential property market a lift.
Tax breaks would be welcome. But there is no reason for despair.