Monday, 23 December 2013

What can we expect for UK PLC in 2014?

The end of any year is a time to reflect. A time to recap. And a time to look forward. And that's what we're going to do today - reflect, rather than react.

2013 was the year that the British economy finally began to pull away from the black hole that the financial crisis of 2007-2008 had caused - and which was then exacerbated by the economic policies of the UK's coalition government. The level of growth which we actually got - of 1.3 per cent to 1.4 per cent, if we're lucky - was pretty rapid given that we entered the year fearing another recession. And now next year now bids fair to be pretty good - if we only look at the headline numbers for Gross Domestic Product overall. Every estimate now seems to push predictions upwards, rather than cut them - a depressing and salutary lesson in how little we know that we'd got used to for far too long. The doomsayers have been consistently proved wrong since about last spring, when a gentle but perceptible thaw started to take hold.

But it's not going to be the sunlit uplands. Sure, 'Public Policy and the Past' has probably been too gloomy about the prospects for Britain's economy up to now (though we always pointed out that her industries and businesses were more robust, in the medium term, than they looked). But the British economy remains fundamentally unbalanced - as it was always going to be, once Chancellor George Osborne made the decision to cut back the public sector so rapidly, and to rely on massive increases of private debt to take up the slack.

The result, especially once the Government adopted its apparently growth-at-all-costs mantra late in 2012? Well, it's what everyone knows in their heart of hearts: what even Mr Osborne's colleague and Business Secretary, Vince Cable, calls a raging house price boom in the South East of England, unmatched by similar prosperity elsewhere. And, at one and the side time, a really horrible record on productivity and exports, both figures which seem to look worse every time we look at them. And endless, endless public sector cuts - all the way to 2018/19. Let's imagine the British economy like this: a reluctant diver, it has finally left the podium to try to slice into the water after a lot of shivering and dithering, but it's arcing through the air with a bent neck and back that'll see the body smash and shatter when it reaches the pool. The next Parliament will be a time of continuing economic pain, especially as interest rates are now likely to rise pretty quickly after the General Election of 2015 - if they haven't already, to career-ending effect in Mr Osborne's case.

So the prediction for 2014? More unspectacular but gently accelerating growth, tugged along by a more and more buoyant United States. More below-inflation wage growth for nearly everyone, until right at the end of the year (or not at all). A strenghtening, but still below-par labour market that struggles to deliver any improvements in Britons' standard of living. All in all, it'll be a situation which will see the main governing party, the Conservatives, continue to cut into and erode Labour's rather fragile lead in the polls - though perhaps not by enough to be confident of returning to Westminster as even the largest Party after May 2015. The macroeconomy will look positively healthy by recent standards; normal citizens will still feel poorer.

None of which is very earth-shattering in terms of punditry, really. But it's at least a welcome return to some sort of normality after the last few years - and the occasion of at least half a glass of Christmas cheer.

So that's all for now. We'll be back in 2014, to talk about the impending General Election (of course), the economy (naturally), and any continuing public policy debacle that might have been avoided had a friendly historian been on board (and yes, we do mean you, Mr Duncan Smith). Look for new posts from Monday 6 January, and you won't go too far wrong.

Meanwhile, Happy Holidays!

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