Fuelled by property price inflation, centred on London, and entirely dependent on cheap borrowing. This is a bubble, just like the one that burst in 2008
Happy days are here again, if you read the right papers. UK output grew by a mighty 0.6% between April and June this year, on top of 0.2% growth in the three months before that. “BOOMING BRITAIN HAS WOW FACTOR” boasted London’s Evening Standard.
Don’t believe the hype. This isn’t a boom. It’s barely even a convincing recovery. After years of stagnation, aided and abetted by George Osborne’s austerity policies, it might be possible to present these feeble growth figures as something to boast about. The IMF now forecasts 0.9% growth for the year. That’s a third of the rate of the early 2000s. The economy is limping when we would normally expect it to be sprinting.
But these headline numbers hide the real issues in our stuck record economy – going round and round the same problems:
1. Real incomes are still falling for most
The rise in GDP means the whole economy is growing, slowly. But that economic growth is not turning into increased prosperity for most. Average earnings in the UK have fallen 5.5% since 2010. This is a bigger fall than almost every other country in Europe – only Holland, Portugal, and Greece have seen steeper declines. The typical UK worker now earns less than they did a decade ago.
With hours cut for many, and wages flat, increases in the cost of living have eaten into people’s earnings. The headline rate of inflation, however, understates the real impact of sharp increases in the price of essentials like water, electricity and gas. In money terms, incomes have risen 36% in the last decade. But the price of gas and electricity has gone up 146% over the same period of time.
2. Manufacturing output has not recovered
The last month saw a slight increase in the output of Britain’s manufacturing industry. This was cheered on by some as a sign that the economy is “rebalancing”: shifting away from excessive dependence on services (and financial services especially).
In fact, manufacturing output is still lower than it was this time last year, as the official figures show. It collapsed during the 2008-9 recession, and has not recovered. In fact, taken as a whole, the UK’s industrial output is lower now than it was in 1992. In other words, twenty years of economic growth has been wiped out.
3. Britain is not paying its way in the world
News reports claimed that Britain’s exports to the rest of the world reached “record highs” over the last month. These exports helped shrink its current account deficit – the difference between what Britain sells to the rest of the world, and what it buys from the rest of the world.
The current account has been in deficit since 1983. Britain always buys more from the rest of the world than it sells to the rest of the world. The difference is paid for by borrowing from abroad, helping Britain become just about the single most heavily-indebted major economy – driven by private, not government, debt.
So the deficit on trade in goods, excluding oil, fell by £329m last month. But £310m of that came from a single source: the London art auctions, which had a spectacular month for overseas sales. Short of selling the entire contents of the Tate over the next year, this is hardly a sustainable recovery.
4. Britain isn’t booming. The London property market is booming
The UK is now the most geographically unequal country in the EU, as the graph here makes plain. Central London is one of the richest places in Europe, but parts of Wales and elsewhere are amongst the poorest.
Since the crash, this regional imbalance has got worse. In the last five years, 267,000 jobs have been created in London, but 284,000 destroyed in the rest of the country. There’s no special magic in London. This growth is driven by rising property prices. These are fuelled by both the rush of money in from abroad and now – stupefyingly – active government subsidies, backed up by promises from the Bank of England to keep interest rates down for the next few years.
London’s property market is marching ahead of the rest of the country, as the ONS figures show:
So that’s the “boom”: fuelled by property price inflation, centred on London, and entirely dependent on cheap borrowing. Real incomes are continuing to fall and debts continuing to rise. If all this sounds familiar, it should. This is a bubble, just like the one that burst in 2008.
Radical economist James Meadway has been an important critic of austerity economics and at the forefront of efforts to promulgate an alternative. James is co-author of Crisis in the Eurozone (2012) and Marx for Today (2014).