Wednesday, 14 August 2013

Digging beneath the detail of the recovery


Is it the weather? Is it sporting success? Is it the royal baby? It's not clear, but there's something in the atmosphere, in the ether... That the UK has come through one of its most grievous twentieth-century economic challenges, and that it's now on the up. The clouds have started to part a little and, although this was inevitable once everyone started to despair of ever seeing economic spring again (once the last bull became the last bear, in City parlance) it still feels pretty refreshing.

Investment is up. Jobs are being created. There's some beefy quarter two growth - at long, long last. House prices are going up. Car sales are looking pretty healthy. Even wage growth isn't as anaemic as it was.

But dig a little deeper and none of it feels as special as the warm weather and the glow of athletic prowess might make it feel.

Investment may be up overall, and what jargonists call 'Gross Fixed Capital Formation' is heading northwards for the first time in over a year. But business investment is still going down, if by less than previously thought. It's housing that's making all the running (with a bit of plant and equipment purchasing thrown in, to be fair) - of which more in a moment. Job numbers are also increasing, but the numbers of new entrants still chugging into the market mean that the actual rate of unemployment is just stagnating. Growth is going up, but 0.6 per cent per quarter - but 2.5 per cent or thereabouts per year is only trend growth, not the springback using unused capacity that one would expect given that the economy has been doing a good impression of a barren crater for five years. Wage growth is a bit less of a horror story than it has been, it is true, though it is still lagging behind inflation - meaning that real wages are still going down.

And house price rises? Well, as this column has argued again and again, that isn't an unalloyed bonus. If you're young, or you want to trade up without an increase in your income, or you don't own property, it hurts you rather than helps you. In any case, even assuming broadly that most people own their own homes and feel wealthier (thus increasing demand), it's a very uneven picture. Many regions are only now seeing their first quarter of house price growth - and some still haven't seen any increases at all - a fact that only adds to the impression that most of our present growth is pulsing through London and the South East, but failing to reach the rest of the country.

We could still do with some visionary infrastructure projects. Some more spending. And a less crazily restrictive budgetary policy that puts all the onus on the Bank of England's monetary activism.

Without that bold experimentation, we're going to zig-zag our way out of the present hole for some time to come. We're going to get there - slowly. But the only reason things feel springlike right now is just how long, and just how hard, the winter has been.

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