Reblogged from Michael Meacher MP:
There are four reasons why the future of the UK economy, both internally and
externally, does not look good. No sustainable recovery can occur till these
four obstacles have been cleared, and of that there is no sign. First, the
collapse in business investment has been devastating: it is still 25% below its
pre-crash level. What this means is that industrialists are still not
convinced that the relatively small and very late turn-up, generated in the
wrong way by consumer borrowing and the artificial Help-to-Buy bribery, signals
any long-term recovery of demand. The £800bn cash stockpile on which the big
corporates are sitting is still not being used to invest. According to the
Economist Britain is actually 159th lowest in the world in terms of business
investment. Until that is massively turned around, Osborne’s contradictory
‘expansionary fiscal contraction’ will continue to be the fraud it is.
Second, there are no productivity gains in sight, quite the reverse.
Employment, albeit much of it part-time or at or below the minimum wage of £6.31
an hour or indeed subject to zero hoursc contracts, has increased but without
any corresponding or greater increase in output. UK productivity is therefore
at almost the lowest ebb in the EU, and without a real and continuing rise in
wages (now 9% in real terms below the 2007 level) there cannot be the
productivity gains to embed growth.
Third, the UK debt overhang is growing, not reducing. If by 2015 total
government debt is nearly equal to total GDP and is still rising at 8% a year
(as it is at present if special factors are discounted) plus the current account
deficit is still continuing to run at the very high (and rising) rate of 4% of
GDP, and with no realistic prospect of either ratio improving, the UK’s
situation becomes increasingly unsustainable. Similarly, the budget deficit is
not going down appreciably either. In 2011 it was £118bn and in 2012 this had
hardly fallen at all at £115bn. The 40% cut in public spending budgets and the
£18bn cut in benefits and hence in consumer demand, plus the £40bn further
intended cuts after 2015, has produced searing pain, yet next to nothing
improvement in the national accounts which was supposed to be the whole aim of
the exercise.
Lastly, the external situation has now significantly deteriorated. The
attempt of Japan, the world’s third biggest economy, under reflationary
Abenomics to break out from two decades of deflation has, for the moment at
least, stalled as equities have faded. In addition the recent little revival
in the Eurozone has now reversed, with the latest growth almost evaporating at
0.1%. Though this partly reflects the weakness of Italy and Spain, both
Germany and France have also fallen back significantly.
Against that background this little surge in UK growth is not going to go
far. It was triumphantly noted two months ago that the PMI index of industrial
confidence had hit 60 (where 50 is the balance between optimism and pessimism).
What was not said was that this had already happened 3 times before since 2010
and then had fallen back. It was also not noted that the manufacturing and
construction sectors had fallen a huge 15-20% since 2007, so that any rise in
confidence was from an extremely low base.
Against this gloom what is desperately needed is a robust and determined
demand from Labour that only public investment can now save this country from
semi-permanent austerity. What is holding the party back?
