Friday, 26 April 2013

Britain's economy: it's a slog that lies ahead

So we avoided a triple-dip recession (above) It's a relief, and a sign that at long, long last there might be a bit of hard ground under our feet. We might just have stopped sinking.

There'll be a bit of a fillup to confidence from the announcement. There'll certainly be sighs of relief in Whitehall and amongst MPs from the two governing parties at Westminster. A Conservative administration - albeit a minority one - might still be formed following the 2015 General Election after all.

But what does this really tell us about where we're headed? The answer: not much. Scratch underneath the headline data, or alternatively look at historic trends and comparators, and things still look pretty bleak.

We're going ahead, but we're going ahead very, very slowly. The nadir of our projections - less than one per cent growth this calendar year - might be behind us. We might do a little bit better than that, at this rate. But this is still by far the slowest and flattest recovery from any recession in modern history. Sure, we went down further in the crash of the early 1930s (partly because we tried to reflate this time, before aborting the operation after the 2010 General Election) - but we're bumped along the bottom for years now, and the waste of lost output and lost income is now worse than in the Great Depression and its aftermath. That's right: worse than the Great Depression.

There's worse. Productivity growth has plummeted, to some of the worst levels we've ever seen in this country. Why invest? Why retrain? Why Why move your job or your company? You might very well ask those questions, and answer them with a very negative 'don't bother' if banks won't lend and the economy looks unlikely to grow very rapidly for years to come. Of that virtuous circle of high growth, rising wages, high investment and high productivity that was the hallmark of the 1950s and 1960s - the era demonised by Thatcherites for three decades now - there is no sign. And there isn't likely to be, either.

That's because fiscal policy continues to be pointed in exactly the wrong direction - 'cutting' the deficit, while tinkering around with some ludicrous and ill-conceived supply side plans that not even the Conservatives' own MPs and Lords think will work. A declared objective that won't even come true in its own terms, as the Treasury is likely to continue missing debt targets for as far as the eye can see. They made it in under the wire for 2012/13 by the simple trick of slashing capital spending and demanding departments spend little or nothing in February and March. You know what? I can pick up a telephone and shout at people too. It's not a skill. It's an admission of failure.

So we look out on a rather unappealing vista: years and years of public sector spending cuts, perhaps running to 2018 or 2019, very low productivity growth, little or no real income growth (in fact, quite the opposite - a big squeeze on family budgets) and only moderate growth in GDP.

We're beginning to crawl away from the precipice. But we're shuffling away from the brink on our hands and knees. We should be walking on our own two feet by now.