In the current global economic climate, growth of 0.7 per cent in the third quarter, as announced by the ONS today, is more than respectable. Output is down from the 0.9 per cent recorded in the previous three months but George Osborne can still boast that “[we] lead the pack in an increasingly uncertain global economy.”
The problem for the Chancellor remains how unevenly the proceeds of this growth are being shared. When wages briefly drew level with inflation earlier this year, many claimed that what Labour called the “cost-of-living-crisis” was over. The Tories argued that wages were a “lagging indicator” and that higher output would translate into higher salaries. As Osborne remarked after the publication of last year’s third quarter GDP figures, “If Britain is growing then the finances of Britain’s families will start to grow.”
Yet a year later, real wages are still falling. Inflation stands at just 1.2 per cent but pay growth is even weaker at 0.7 per cent. Even after six years of falling wages, the longest squeeze on living standards since the 1870s goes on.
When confronted with this fact earlier today by ITV News, which warned there was no “feel good factor” in the UK, Osborne replied: “I simply don’t accept that”, adding that growth in GDP meant “more economic security, it means more jobs, it means a brighter future”. By this, the Chancellor means that those who are now in work (albeit on low pay) are better off than they were when they were unemployed. But while the near-record level of employment should be welcomed, this doesn’t conform to most people’s definition of a recovery. Even the GDP figures are less impressive than they might appear. Output is now 3.4 per cent above its pre-recession peak but the population has grown by 4.5 per cent over the same period. In other words, GDP per capita is still more than 1 per cent lower than before the crash.
It’s for this reason, among others, that while the Tories lead Labour by 16 points on economic management, they still trail them on living standards (as Mitt Romney did Barack Obama). By posing the “Reagan question” in May 2015 – “Are you better off or worse off than you were five years ago?” – Miliband hopes to trump the Conservatives’ advantage on the deficit and growth.
Even more worryingly for the Tories, the slowdown in GDP, which is likely to continue in the months ahead, means that wages could fall further still. The one hope for them, perhaps, as I write in my column this week, is that the darkening global economic climate will convince voters that it’s too dangerous to change captain when the storm is still raging. As Labour’s poll boost during the financial crisis demonstrated, turmoil can be good for governments. It’s with this in mind that Osborne framed himself today as the man to shield voters from the vicissitudes of the global economy. He said: “The UK is not immune to weakness in the euro area and instability in global markets, so we face a critical moment for our economy. If we want to avoid a return to the chaos and instability of the past then we need to carry on working through our economic plan that is delivering stability and security.”