In the post-crash era, the bar for economic success is set almost comically low. Conservatives are this morning celebrating the news that the UK has once more avoided recession. After shrinking by 0.2 per cent of GDP in the second quarter of this year, the economy grew by 0.3 per cent in the third quarter. “Great to see solid Q3 growth – another welcome sign fundamentals of UK economy are strong,” boasted the Chancellor Sajid Javid.
But this is comparable to a flagging runner declaring that he has, at least, kept moving. As the Office for National Statistics noted, “Over the last year, growth slowed to its lowest [annual] rate in almost a decade” (1 per cent). There is, in other words, no cause for celebration. Since 2010, the UK has endured its slowest economic recovery on record and the outlook has merely worsened this year. Average earnings, meanwhile, are not expected to return to their pre-crash peak until 2025 (workers are still £13 a week worse off than in 2007).
By calling an early general election, and cancelling the planned Budget, Boris Johnson avoided a new set of downgraded economic forecasts from the Office for Budget Responsibility. But he cannot disguise the parlous figures published today.
An already weak economy – too unbalanced, too unproductive and too unequal – now faces the threat of a painful rupture with its largest trading partner. The surge in exports promised by Brexiteers following sterling’s sharp depreciation has not occurred; but the fall in investment warned of by Remainers has.
Should the UK soon enter recession, it is dangerously short of firepower. Unlike in 2008, when interest rates still stood at 5 per cent, dramatic cuts are no longer possible (rates are now just 0.75 per cent), and the Bank of England has already enacted £435bn of quantitative easing (electronically created money used to purchase government bonds and other assets).
By embracing higher public spending and signalling their willingness to borrow for investment, the Conservatives have at least disowned George Osborne’s austerity economics. As they have tacitly conceded, cutting public spending in pursuit of a worthless budget surplus made neither political nor economic sense. Now, just as Osborne’s Keynesian opponents once did, Javid argues that ultra-low borrowing costs (below 1 per cent) mean the state can afford to expand and invest.
But the Conservatives are no closer to offering a vision of an alternative economic model that ends the UK’s overdependence on consumer debt and high finance. Whether the economy grows or not matters less than the overriding reality that its fundamentals remain profoundly weak.