UK Economy: Is All That Glitters Really Gold?

As people in Britain throng the high streets hunting for Christmas presents, critics of the government’s claims of a solid recovery warn the economic upswing is not as solid as the Chancellor claims.

High street

After three years of austerity and a near double-dip recession, the UK is now pulling out of the economic downturn at a faster rate than many other European countries. Last week the finance minister, George Osborne, hailed his Conservative-led government’s efforts as he presented a positive economic outlook to Parliament in his autumn statement.

Severe cuts to the public sector had worked, he said, and further prudent spending policies would see the country right in a not too distant future.

A picture of a shopper in Manchester walking past an empty shop, a sign of the recession that hit Britain hard in the last few years.

Empty shop fronts show that the UK still has a long way to go.

Yet Christmas shoppers in Manchester were less optimistic, reflecting a recent survey showing 70% of Brits don’t feel the recovery has benefited them or their families yet.

“My husband works for the construction industry and he’s just ticking over,” said Emily Davis (31), a stay at home mother. She was not overly impressed with the government’s claims of brighter days ahead.

“There’s a certain something to be said about trying to boost moral, but I don’t think we’re out of the woods yet.”

Brian Jackson, a retired bank worker, agreed:

“It’s a question of getting rid of the personal debt, and if you look at the total figures people are owing on average £55,000 (€65,440 or $90,000) if you include mortgages. I think it’s going to be another five or six years of living well within our means.”

Recovery ‘built on debts’

And that is exactly where the main problem lies, some critics argue. While the government says Britain’s manufacturing industry needs to play a central role in the recovery, the latest economic figures suggest the upswing so far is based more on personal spending

“All that has changed is that consumers have got over their panic and have started to borrow money again,” Colin Talbot, an economist at the University of Manchester, told DW.

“Household debt is now up to almost the level it was in 2007 before the crash. It’s not business investment which is driving the recovery, it’s not manufacturing or export,” Talbot said.

His views were backed up by Britain’s official independent fiscal watchdog the Office for Budget Responsibility. In its latest economic forecast it said improvements to the fiscal outlook were “cyclical rather than structural,” and that the growth was driven by consumer spending and rising house prices more than business investment and trade.

People’s pay packets rose by 0.7 percent last year, while inflation stood at more than two percent, which means a recovery based on private spending is not sustainable.

‘Not quite the green shoots of recovery’

There have been some indications of growth in UK manufacturing, however, and local companies hope they have reason to be optimistic.

“We are now seeing the start of a pick-up, although I wouldn’t go as far as calling it the green shoots of recovery,” Chris Marsland told DW. He’s the technical director with ENER-G, a manufacturer of low carbon combined heat and power systems based in Salford, Greater Manchester.

A picture of protests against austerity measures introduced by EU governments including the UK.

Osborne credits austerity for the economic recovery but that is hotly contested

“Personally I’m very proud of us being a manufacturing industry in Manchester on the banks of the Manchester ship canal, where some of the industrial revolution really happened -and we are manufacturing and we are exporting,” he said.

“But there needs to be a lot more of that. The UK needs to build its recovery on exporting, manufacturing and engineering skills. So the government needs to incentivize people to do that by, for instance, providing tax incentives for the significant cost of setting up new businesses.”

“I guess Germany is a prime example – look at the way their manufacture and engineering skills and products have exported world-wide. That’s what made Germany the powerhouse of Europe, and that’s where Great Britain used to be,” Marsland said.

Glass half full or half empty?

For the government, the latest figures will always be interpreted as a glass half full rather than half empty. The 2015 general election is drawing closer, and Prime Minister David Cameron and his finance minister George Osborne need to be able to tell voters their largely unpopular austerity measures really have worked.

The latest figures from the Office for National Statistics earlier this week showed the overall manufacturing output rose by 0.4 percent from September to October. Yet senior economic analysts are being far more cautious than George Osborne.

“Though manufacturing is recovering, output is almost nine percent below its pre-crisis level,” said David Kern, chief economist at the British Chamber of Commerce.

“We still have a large trade deficit and not enough progress is being made to rebalance the economy towards net exports.”

UK exports to the EU fell by 3.8 percent last month. Yet the British model has gained some approval on the mainland. Last month Arnaud Montebourg, a senior industry minister in President François Hollande’s Socialist government, praised what he saw as the UK’s sensible combination of austere fiscal policy and loose monetary policy.

Yet many other European politicians and economists have been looking to Germany as a better model for the recovery which so many EU countries now are chasing.

– The Guardian