Tuesday, 26 January 2010

Recovery - what recovery?

Prime minister Gordon Brown will need industrial scale smoke and mirrors to claim any real positives from today's economic news.
Better late than never official output figures show the UK economy has climbed out of recession - only just and subject to revision. Growth in the fourth quarter registered a bare 0.1 per cent but it meant we join other major economies back in the black. Yet but for the fillip from the national car scrappage scheme and a beat-the-VAT-rise in retail spending, the Government might have had egg all over its face with the publication of the data.
With the billions of pounds that has been pumped into the British banking system and near-zero interest rates, City analysts had been forecasting the initial bounce back would be around 0.4 per cent.
However, a relieved Labour government, which fears being swept from of office within months, seized on the morsel of good news as evidence that its recovery plan was working. Yet this shouldn't be the occasion for national rejoicing - there is much pain to come.
The British economy is holed below the line as a result of the massive debts it has taken on board since the start of the banking crisis. It will not be steered away from the rocks without savage public spending cuts in years to come and higher taxes. The triple-whammy could be that higher inflation forces the Bank of England to consider raising interest rates.
In any case the single most important economic statistic isn't growth but unemployment. The latest figures showed the increase in the jobless total had begun to level off. But calculation of the numbers is suspect and some economists say real levels are much higher than official estimates.
There seems little incentive for British consumers - previously a major engine of the UK economy - to rush back to the high street. With the banks living off taxpayers' support, it is down to our exporters to exploit any improvement in demand being experienced beyond these shores.
If Brown calls an election before the expected date of May 6th, it will be because he fears the current quarter's figures will show the UK back in recession. All that is open to doubt is the size of Labour's defeat. So far in the election campaign disenchantment with the government remains the Tory's only ace.

1 comment:

What do you think? GC