Simon Basketter finds the claims of economic recovery an unconvincing mix of exaggerated figures, mounting debt and another property bubble brewing
Before the summer politicians and pundits said Britain was heading for a triple-dip recession.
Now, after a few weeks of sun, we are told it’s “Boom Britain”. Is this just silly season euphoria or something more?
In June, most sectors of the British economy did a bit better than expected. Manufacturing grew by 2 percent according to the Office for National Statistics.
Services grew at their highest rate for six years. Car sales increased by 13 percent in June and house prices rose at their fastest rate in three years.
Of course house prices are not a sign of economic health. Nor is relying on what Margaret Thatcher called “the Great Car economy”.
The headlines paint a picture that doesn’t match the reality of life for millions of working class people.
Average households in Britain have lost around £1,300 a year in real terms since 2010.
A recent TUC report states the rate of household savings has dropped by 43 percent in the past year, as people try to cope with rising prices.
So where is the cash coming from?
People are trying to borrow, as they did in the years before the crash in 2008. The Tories hope a housing bubble will help them win the next general election.
Their Funding for Lending scheme last year (see below) handed essentially free money to banks if they agreed to lend some of it.
This has stimulated the housing market, and led to a 3 percent increase in house sales. When people move house, they buy stuff—paint, wallpaper, beds and the like.
And when prices go up it helps wealthier homeowners and buy-to-let landlords to borrow and spend more.
This is partly why consumer spending is rising. It is also why the Tories are putting their hopes in an increase in consumer spending in time for the next election.
Money is funnelled into the property market, reinvigorating the speculation that led to the crisis in the first place and further concentrating inequality.
The medium term effect of this is to increase debt. Wages can’t pay rising costs but credit is available, in the form of credit cards or payday loans for us and large loans for the speculators.
Meanwhile the new governor of the Bank of England, Mark Carney, has promised to hold interest rates at 0.5 percent—the lowest in 300 years.
Though that doesn’t mean low interest for ordinary people’s debt. The rate will stay the same until unemployment falls below 7 percent.
That would mean some 750,000 people finding jobs—which may take some time.
Carney’s “guidance” was designed to reassure bosses about future borrowing costs. But it came with a number of get-out clauses.
We are being invited to borrow more while bosses refuse to give workers the hours, jobs or pay they really need.
The new “recovery”, even if it does last, is based on sand.
There’s still 3.3 percent less stuff produced in Britain today than before the recession in 2008, according to GDP figures.
And in key sectors it is worse. Manufacturing output remains 14 percent below its pre-recession peak.
Construction expanded a little but is still over 17 percent lower than before 2008.
It will be a long time before the economy makes up the ground that has been lost.
And that relies on the global economy improving.
The markets have calmed down a bit thanks to a few quiet months from the Eurozone crisis. But as economist Michael Roberts points out, “Greece is still bust, Spain depressed and Italy paralysed.
“As the summer rolls on, it is increasingly clear that the depression in the southern Eurozone economies is not going to go away any time soon.”
With Chinese growth slowing, there are global trends which could easily wipe out the recent gains in Britain.
Money is being thrown at housing. But it is going to developers and landlords rather than people who need housing.
Britain needs to build more homes yet the Treasury is fuelling higher house prices.
Fewer than half the 220,000 new homes they admit are needed every year are being built.
Chains of private landlords are renting out a third of the council houses sold off—at higher rents.
In the deregulated private rented sector, tenants are ripped off by agencies imposing hundreds of pounds in “admin fees” for insecure tenancies.
Meanwhile the comfortable own 2.3 million second homes in England and Wales to enjoy weekends away.
There’s more than enough housing but the five million on waiting lists for social housing will never get to see it.
But building council houses doesn’t produce as much profit as a housing bubble—so the Tories aren’t interested.
The Bank of England cut interest rates to encourage banks to lend money to each other and firms.
Then they printed them cash, known as “quantitative easing”.
That’s their jargon for one side of their twin approach for the crisis.
The other is “fiscal austerity”—the swathes of cuts to jobs and services.
In other words they give money to the bankers and bosses and take it from the poor.
Right wing economist Milton Friedman described quantitative easing as throwing money from a helicopter.
But only the rich are allowed to catch it.
New Bank of England governor Mark Carney gets a £874,000 annual pay packet.
Carney worked for 13 years as an investment banker with Goldman Sachs. He advised Russia during its 1998 financial crisis while the bank was betting against the country’s ability to repay its debt.
From 2004 to 2007, Carney worked with the Canadian Department of Finance. It slashed billions from welfare and cut taxes for the rich.
Economists consider the 2.5 million unemployed as manageable.
The jobless number would be higher without the growth in underemployment and cuts in people’s hours.
At the same time the past five years have brought workers the deepest pay cuts of the modern age, according to the Institute of Fiscal Studies.
Real wages have been falling for over 40 months, the longest squeeze since the 1870s.