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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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.