Osborne: UK economy is on right track
Opposition warn long-term plan is needed
BRITAIN’S economy is “on the right track”, George Osborne has insisted after the latest economic figures showed growth of 1% in the thirdquarter – boosted by the Olympics – meaning the longest double-dip recession since 1950 is officially over.
However, on the day car giant Ford announced 1400 job losses and the closure of two UK sites, there was a warning it was too early for the Chancellor “to contemplate singing in his bathtub” as Opposition politicians stressed the economy continued to flat-line as it had done since the Coalition came to power.
Labour and the SNP repeated their calls for an economic stimulus to boost jobs.
And Scottish business leaders noted how the Olympics, far from having boosted the Scottish economy, might have damaged it, which could mean Scotland’s GDP for the third quarter might be comparatively worse than the UK’s as a whole. The Scottish growth figure is due in January.
Earlier this month, a survey by the Fraser of Allander Institute painted a grim picture of the Scottish economy, showing that trading was down across several sectors and businesses were lowering their expectations for the next six months.
The 1% rise in GDP was larger than analysts had expected and was mainly due to a surge in the services sector, which makes up 75% of the entire UK economy. This grew by 1.3% following a drop of 0.1% in the previous quarter.
While industrial production also increased, by1.1%, construction shrunk by 2.5% after a 3% fall in the previous quarter.
The Office for National Statistics, which released the data, pointed out how the bounce back was largely driven by oneoff factors such as clawed-back activity lost to the extra bank holiday for the Queen’s Diamond Jubilee and a slight lift from the London Olympics.
It explained how the economy had contracted by 6.4% between the start of 2008 and the middle of 2009 but had since recovered half of that lost output.
Mr Osborne said: “There is still a longway to go but these figures show we are on the right track. By continuing to take the tough decisions needed to deal with our debts and equip our economy for the global race we’re in, this Governmentis laying the foundations for lasting prosperity.”
Prime Minister David Cameron insisted the growth figure showed the Coalition had the “right approach and we must stick with it”.
For Labour, Ed Balls warned that, with the economy still flatlining, borrowing up and living standards down, it would be “very unwise of David Cameron and George Osborne to just sit back, cross their fingers and hope for the best”.
Ed Miliband, the party leader, said what was needed was a “proper long-term plan for a strong, sustained recovery”.
Stewart Hosie for the SNP also cautiously welcomed the rise in UKGDP but stressed the country was still along way from recovery and needed a “targeted fiscal stimulus”.
Meanwhile, Lord Lawson, the former Tory chancellor, also expressed caution, describing the growth figure as “unreliable” and describing the economy as “more or less flat-lining”.
Economist Howard Archer, from IHS Global Insight, said: “The economy is far from out of the woods with further relapses highly possible in the face of still tough domestic and global – especially eurozone – conditions. So it is premature for the Chancellor to contemplate singing in his bathtub.”
Liz Cameron from the Scottish Chambers of Commerce pointed out that therewas no boost from the Olympics north of the Border and, from the organisation’s own survey, the 2012 Games might have had a negative effect on several sectors in Scotland.
THEREwewere, thinking the best bounce to have come out of the Olympicswas the one that led to Andy Murray winning a gold medal in the tennis. As shown in the Gross Domestic Product figures published yesterday, the UK economy grewby 1% in the last quarter, and 0.2% of this has been directly attributed to the Olympics effect. All that pizza scoffing and beer glugging, all those temporary staff, all that buying of bunting, bounced us officially out of recession.
The Prime Ministerwas in the mood to put out the bunting again as a result. At Prime Minister’s Questions onWednesday, David Cameron could hardly contain himself as he promised “good news” would soon be coming. Though Number Ten has since said the Prime Ministerwas speaking in general terms (disclosing marketsensitive information before publication being not the done thing and all that), therewas a definite Tiggerish bounce to Mr Cameron. All that can spoil the feelgood mood nowis for Boris Johnson, the London Mayor, to remind thePMthe Olympics took place in his manor.
The Chancellor, George Osborne, was more cautious, issuing a reminder therewas a longway to go. Though it is safer to skydive from space than it is to rely onwhat the Coalition Government says – remember the Budget debaclewhen you next recall the Alamo – in this instance Mr Osborne isworryingly correct. For the best clues as to where the economy is heading, and howlong it will take us to get back to pre-2008 levels, forget the bunting and pizza index and think handbags and high-end drinks instead.
What is remarkable about the GDP figures, besides the fact they increased, was that theywere a rare blast of sunshine in an otherwise bleakweek. The Confederation of British Industry in Scotland reported a severe drop in new orders and output. That is storing up a lot of woe to come. Mulberry, the British manufacturer of handbags that cost asmuch as a foreign holiday, issued a major profits warning on Tuesday. After the company reported disappointing international sales in the first half of this year its share price fell accordingly. It is not the first luxury goods firmto feel a cold wind blasting in from Asia. Burberry has felt it too. As The Herald reports today, Pernod Ricard, makers of Chivas Regal and The Glenlivet, is seeing more moderate growth in Asia than previously, and in Chinawhisky sales have fallen.
Since the global recession hit in 2008, Western firms have been increasingly reliant on the Asian market, China especially, for sales. In this globalised economy, we truly are all in it together. Whether it is Paisley or the posh end of Bond Street, jobs depend on parents in Shanghai or Bangkok buying Alexa bags as graduation presents for their daughters, or toasting their success with glasses of Chivas Regal.
Long may they continue, but the numbers suggest they will not be doing so to the extent shown previously. China remains the gold rush nation – wealth soaring, consumption increasing, GDP now $7.2 trillion. Growth is slowing, but theWorld Bank, reporting on East Asia and the Pacific region at the beginning of October, still expects growth to be 7.7% in 2012. Economically, there is no major cause for concern as far as China goes. Politically, theworld’s most populated country is another matter. In the Philippines, Indonesia, Thailand and Malaysia, growthwas lower than projected.
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We are witnessing the birth of a new, more savvy consumer
In India growth is slowing. In Japan it has fallen from 1% to 0.3%. The East as awhole has been suffering blowback from the economic problems in theWest: if theWest can’t buy from the East, the East can’t buy from theWest. In the West, the eurozone in particular, things are looking down, not up. One analysis has Germany going back into recession. In France the economy is tottering from bad toworse.
It is a gloomy andworrying picture. Yesterday’s GDP figures in the UK, though going in the right direction, forwhich three cheers, could yet be revised downwards. Yes, itwas a heartening rise, but givenwhat happened in the previous quarter – rottenweather, that ludicrously long Diamond Jubilee holiday – the onlywaywas up. In the critical construction sector, outputwas down. You don’t have to be a pessimist towork in the British economy, but it helps. Nowonder there has been an unofficial threelinewhip among the Tories to ban any use of the phrase “green shoots”.
Lord knows the British consumer could do with some positive news. Anythingwhich sends people back into the shops iswelcome. But consumerswon’t be fooled again. This, after all, is a recession started by those at the topwhich has hurt those at the bottom most. Households are nowguided more bywhat the bank statement says at the end of the month thanwhat the banking industry says. They read their ownwage slips before they give credit to economic predictions. From mainwage earner to student, they will never forgetwho let them down.
As a result, whatwe are witnessing in theWest is the birth of a new, more savvy consumer. Alittle older, a lot wiser, and yes, more fearful too. With the ending of the old certainties – a job for life, a free education, a guaranteed pension – comes newconcerns. Likewhat sort of societywe will be a generation from nowif the younger generation still can’t findwork; and how we will be able to fund getting older with fewer putting money in the pot. As for our growing economic reliance on the expanding East, the subsequent impact on the environment may have only begun to show itself.
Bleak times, then, a rise in GDP or not. Yet it is the newconsumer’s colder, harder, more realistic attitude that strangely enough gives cause for optimism. While politicians, most of themwealthy in their own right, have preached austerity, households have been actively engaging in it. Debt has been paid down and savings have gone up (unless you are a pensioner). Holidays have been cut back or have gone altogether. We are all Chancellors now. It has been miserable for many and truly punishing for the most vulnerable. And it is not over yet. On that point we can agree with the Chancellor. As for that Olympics bunting, it can stay in the loft for now.