Bold steps needed to boost recovery

REASONS to be cheerful are fewer than yesterday’s GDP figures suggest. Preliminary data for the UK economy in the third quarter shows 1% growth. If confirmed, that means not only that the UK is out of the double-dip recession but that the economy grewfaster between July and September than in any quarter since 2007.

Nowonder UK Government ministerswere sounding cock-a-hoop. We can nowexpect David Cameron and George Osborne to start rehearsing the rhetoric that will take them into the next General Election: times have been tough but the economy is nowback on track.

However, on closer examination, the gloss quickly disappears from the figures, especially in Scotlandwhere a string of recent economic indicators point firmly in the opposite direction.

The first observation is that two factors – the Queen’s Jubilee holiday and dreadful springweather – depressed the second quarter and another – £580 millionworth of Olympic and Paralympic ticket sales and the London-focused mini-boom in the hospitality sector – boosted the third quarter, distorting the scale of the apparent recovery between the two. Remove those distortions and underlying growth comes out at something like 0.3%, half of the average quarterly rate over the past 50 years.

The economy is still 3% smaller than before the 2008 crash and barely bigger thanwhen the Coalition came to power. Even out the ups and downs of the past 12 months and the economy is stagnant.

In Scotland, even that is overstating the position and there could beworse to come following the Scottish Chambers of Commerce outlook survey, showing gloom right across the economy.

It is important to remember that around 80% of the Coalition’s cuts are still to come, further depressing demand. And, though lower inflation figures are good news, there is no sign of a let-up in the squeeze on living standards, aswages stagnate. Add to thatwhatWill Hutton of the Work Foundation describes as the “enormous millstone” of private debt.

Mr Cameron constantly talks about the supposed growth in employment but this talk is misleading. If a country’s population rises, as the UK’s has, the number of jobs required to service that population rises. It is the unemployment rate thatmatters and that remains stubbornly high, especially amongwomen and the young. Andwhile many of the jobs disappearing from the economy of high quality, full-timework, such as the Ford jobs in Southampton and Dagenham lost yesterday, much of the newwork is temporary, low-paid and part-time. The gloomy outlook in the eurozone, the destination for half of Britain’s exports, also remains a bigworry.

Instead of hiding behind the Londoncentric Olympics boost, the Coalition should admit that Mervyn King is right to predict a “zig-zag” path to recovery. Then it should take some bold steps to stimulate the economy. National Insurance holidays for thousands of small firms taking on newstaff? Atemporary cut in VAT? Reversing radical reductions in infrastructure budgets? Doing nothing is the only option that should not be on the table.