So is Britain booming? Business confidence in June was at its highest for at least 22 years. In the second quarter of 2014 manufacturing output rose by 3 percent, one of the best performances in the past 20 years.
Meanwhile, Pricewaterhouse Coopers has released a study according to which, the Guardian reports, “the UK will still stand tall among the world’s biggest economies in 2030, having overtaken France and even made progress on closing the gap with Germany.
“Only India will leapfrog the UK on the rich list of nations… According to the report, the youthful vigour of the UK economy, with its high birth-rate and flexible labour market, will contrast markedly with the ageing populations of mainland Europe.”
The growth figures show that the British economy is finally beginning to speed up after the slump of 2008-9 and long subsequent period of stagnation. But they don’t alter the fact that this is a very lopsided recovery.
The sector where confidence is highest is, surprise, surprise, construction, which is of course benefitting from the latest housing bubble.
Average house prices in June exceeded their last peak in 2007, at the height of the previous bubble. House prices rose on average nearly 12 percent over the year to June, and a whopping 26 percent in London.
Robert Gardner of Nationwide building society says, “House prices in the capital are now around 30 percent above their 2007 highs, and more than twice the level prevailing in the rest of the UK when London is excluded.”
The rising property market reflects very low interest rates and government measures to get it going again after the 2008 crash. It means that home ownership is slipping further away from people on ordinary incomes.
And the pound is rising on the currency markets. This in the expectation that the Bank of England will have to increase interest rates soon to cool house prices.
The higher pound will make British exports more expensive. This would increase a trade deficit that reached 5.4 percent of national income last year, among the highest deficits in British history.
Meanwhile pressure on living standards continues. Median real household income stagnated last year at a level 6 percent lower than before the crisis.
The wage squeeze is related to one striking feature of the recovery—overall output may be rising, but productivity (output per hour) is stagnant. Indeed in manufacturing it fell 0.1 percent in the first quarter of 2014, and is 4.3 percent lower than it was before the 2008-9 recession.
According to the Financial Times, “Michael Saunders, an economist at Citi, argued that weak productivity was at least partly the result of people accepting lower wages in order to hang on to their jobs, which in turn had made UK growth more ‘labour-intensive’.
“That was no bad thing, he added. ‘It’s a sort of shared pain approach in which everyone suffers through a drop in real wages, rather than a small share of the population losing out through unemployment while everybody else gets a real pay rise, which is what used to happen,’ he said.”
But of course the pain isn’t shared. The London housing bubble reflects the city’s role as a financial centre and a playground of the global rich.
Austerity will continue to bear down on the rest of us for years to come. When housing costs are taken into account, 23 percent of the population last year were below the absolute poverty line. This is the highest figure for more than a decade.
And the proportion of poor households where at least one person was disabled rose from 20 to 22 percent.
Underlying low productivity growth is the lack of investment in technologies that would raise output per worker.
Worldwide the 2,000 highest spending companies were sitting on £2.6 trillion in cash in 2013. In Britain business fixed investment in the first quarter of 2014 was a mere 8.2 percent of national income.
Firms aren’t investing because they don’t expect a big enough profit to make it worthwhile. So they’re relying on lower wages and a property boom instead. Some recovery.