Don't celebrate too soon, this recovery is dangerously unsustainable

The increase in growth has been driven by rising consumer debt and reverse austerity. Investment and wages remain stagnant.

The dashing Spectator editor, my old adversary Fraser Nelson, is at it again, dissing Ed Balls and Ed Miliband and arguing that all is well with the economy. He is hoping we forget this has been the worst recovery in British history and that only two-thirds of the fall in pre-recession output has been restored. We are five years in and counting, and it is touch and go whether the lost output will have been fully recovered by May 2015.

The risk is that we have been hit by a passing hurricane that will be gone in a flash. The previous nine quarters, three of which were negative, saw little growth at all (0.7%, 0.6% of which was down to the Olympics), followed by three quarters of modest output - 0.4%, 0.7% and 0.8% - and Fraser claims the UK is "off to the races". The economy the coalition inherited, which Cameron, Osborne and Clegg claimed was "bankrupt", grew by exactly the same amount (1.9%) over the first three quarters of 2010 as in the last three. Then austerity was imposed and growth evaporated.

It is true that Markit's three PMIs for construction, manufacturing and services have all been strong, although the British Retail Consortium's report on retail sales, which the PMIs exclude, has been much weaker. Despite this, NIESR is forecasting growth of 1.4% in 2013 and 2% in 2014, while the EU Commission is forecasting growth of 1.3% in 2013, 2.2% in 2014 and 2.4% in 2015. Growth under the Labour government from 1997 Q1 to 2008 Q1 averaged 0.8% a quarter.  Maybe this really is the moment when the economy zooms into life, but I wouldn't bet on it, especially since unemployment is likely to rise. There is absolutely no sign of any real wage growth.

Osborne criticised the last Labour government for going from boom to bust; his response is to inflate another housing bubble that will inevitably implode, leaving the British taxpayer to pick up the tab. House price to earnings ratios are already unsustainably high, especially in London. What goes up must come down, Fraser.

It is clear that the recent rise in growth has been driven by reverse austerity. Government spending has increased and that is what has boosted output. We are now seeing that Ed Balls was completely right - austerity did kill off growth. The recovery we are now experiencing should have occurred in 2010, 2011 and 2012, and would have but for George Osborne's foolishness. A recent study suggested the Chancellor was responsible for lowering GDP by at least 3%; he crashed the car and now wants credit for taking it to the garage for repair.

The other main driver of growth is rising consumer debt and dissaving, triggered by the recent rise in house prices as a result of the absurd Help to Buy scheme. Net trade and investment are not making positive contributions to growth, net business lending especially to SMEs continues to fall, as do real wages. The ONS confirmed this week that underemployment is rising sharply and there is every chance that the unemployment rate will rise again. Indeed, even if there is any growth, it is hard to see it translating into a rise in living standards for the median voter, especially outside London and the south east. Ed Miliband is right to warn that even if there is growth, it is for the few not the many.

Fraser argues that "when you think about all the cash that companies have been hoarding, too fearful to invest it, then there's a good chance that success will breed success as corporations reopen their wallets". But it is unclear why firms will actually start committing long-term UK investment with a slowing US economy, a flat-lining eurozone, and uncertainty over Britain's EU membership.

Don't celebrate too soon, Fraser.  If the next three quarters in a row have growth of more than 2%, I will buy you a very nice dinner; if not, you owe me. It does look to me like a light zephyr. Let's hope for everyone's sake I am wrong.

George Osborne inspects material during a visit to AW Hainsworth and Sons on October 25, 2013 in Leeds. Photograph: Getty Images.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Labour's purge: how it works, and what it means

The total number of people removed will be small - but the rancour will linger. 

Labour has just kicked off its first big wave of expulsions, purging many voters from the party’s leadership rolls. Twitter is ablaze with activists who believe they have been kicked out because they are supporters of Jeremy Corbyn. There are, I'm told, more expulsions to come - what's going on?  Is Labour purging its rolls of Corbyn supporters?

The short answer is “No”.

If that opener feels familiar, it should: I wrote it last year, when the last set of purges kicked off, and may end up using it again next year. Labour has stringent rules about expressing support for other candidates and membership of other parties, which account for the bulk of the expulsions. It also has a code of conduct on abusive language which is also thinning the rolls, with supporters of both candidates being kicked off. 

Although the party is in significantly better financial shape than last year, it still is running a skeleton staff and is recovering from an expensive contest (in this case, to keep Britain in the European Union). The compliance unit itself remains small, so once again people from across the party staff have been dragooned in.

The process this year is pretty much the same: Labour party headquarters doesn’t have any bespoke software to match its voters against a long list of candidates in local elections, compiled last year and added to the list of candidates that stood against Labour in the 2016 local and devolved elections, plus a large backlog of complaints from activists.

It’s that backlog that is behind many of the highest-profile and most controversial examples. Last year, in one complaint that was not upheld, a local member was reported to the Compliance Unit for their failure to attend their local party’s annual barbecue. The mood in Labour, in the country and at Westminster, is significantly more bitter this summer than last and the complaints more personal. Ronnie Draper, the general secretary of the Bfawu, the bakers’ union, one of Corbyn’s biggest supporters in the trade union movement, has been expelled, reported for tweets which included the use of the word “traitors” to refer to Labour opponents of Corbyn.  Jon Will Chambers, former bag carrier to Stella Creasy, and a vocal Corbyn critic on Twitter, has been kicked out for using a “Theresa May” twibbon to indicate his preference for May over Andrea Leadsom, in contravention of the party’s rules.

Both activities breach the letter of the party’s rules although you can (and people will) make good arguments against empowering other people to comb through the social media profiles of their opponents for reasons to dob them in.  (In both cases, I wouldn’t be shocked if both complaints were struck down on appeal)

I would be frankly astonished if Corbyn’s margin of victory – or defeat, as unlikely as that remains in my view – isn’t significantly bigger than the number of people who are barred from voting, which will include supporters of both candidates, as well as a number of duplicates (some people who paid £25 were in fact members before the freeze date, others are affliated trade unionists, and so on). 

What is unarguably more significant, as one party staffer reflected is, “the complaints are nastier now [than last year]”. More and more of the messages to compliance are firmly in what you might call “the barbecue category” – they are obviously groundless and based on personal animosity. That doesn’t feel like the basis of a party that is ready to unite at any level. Publicly and privately, most people are still talking down the chances of a split. It may prove impossible to avoid.

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.