The chancellor has given up on any rebalancing of the economy and has fallen back on what can only lead, further down the line, to another crash.
George Osborne is likely to get a boost this morning when the latest quarterly GDP figures are announced, which are expected to show the economy growing at its fastest rate since before the recession.
UK GDP is still below its pre-crisis level, but considering that this time last year the country was facing a possible triple dip and was about to be downgraded by Moodys from AAA to Aa1, this is a remarkable turnaround.
That said, however welcome it may be to see growth return to the economy it has taken three years to get here. When George Osborne announced his emergency budget in 2010 the economy had been growing for three successive quarters.
What’s strange is how Osborne can take over growing economy, leave it floundering for three years, get it back to where it was before he took over and be hailed as hero for doing so.
That said, continued economic growth is certainly welcome and it signals a likely return to higher living standards in the not too distant future (although, despite what Tory HQ might tell you, we’re not there yet).
What is worrying, however, is the extent to which many lessons from the 2008 crash clearly haven’t been learned.
Companies are struggling to export and the recovery is being primarily driven by what looks like another house price boom. People are shopping again, but not because they are necessarily any better off, but because they’re once again comfortable racking up large credit card debts. The stock of household debt is now 140 per cent of GDP compared to 167 per cent in 2008. House prices in London surged more than 10 per cent in 2013 (to get a sense of how uneven the recovery is, in the North East they fell by 1.6 per cent).
Even some Tory MPs are worried. Earlier this month Douglas Carswell accused George Osborne of following in Gordon Brown’s footsteps, and of generating a credit boom that will ultimately lead to bust.
“Many of the warning signs of yet another credit-induced boom are already there; increasing reliance on consumer spending, surging house prices, falling savings ratio and a deteriorating current account balance,” he said.
“I fear a repeat of the mistakes of the past,” he added.
In other words, the lofty talk about rebalancing the economy that we heard so much of from the chancellor in 2010 has been abandoned in favour of a dash for growth – any growth by any means.
And who can blame George Osborne? This time last year there was much talk of his job being at risk if economic growth wasn’t forthcoming.
The chancellor’s job is a lot safer today, but in securing his position Osborne has given up on any rebalancing of the economy and has fallen back on what can only lead, further down the line, to another crash. This isn’t what was promised in 2010, and it certainly isn’t a vindication of austerity.
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7 Responses to “Consumer debt, another house price boom – what sort of recovery is this?”
Carol Wilcox
At the Fabian conference on Saturday, sitting at the front, I posed this question, pointedly, to Liam Byrne:
I am CW from the Labour Land Campaign which campaigns for the sharing of land values. See here an article in the FT headlined “Equity Release back to pre-Crash Levels”. It is old people who do this who own most land value. Will a Labour government continue to rely on private debt, fuelled by rising land values, for growth?
With the usual format of taking 3 questions at a time from the audience, Byrne was able to quietly ignore my question. When I protested another panellist, a member of the Lords, gave a meaningless response – something to do with building more homes.
Nev Hardwick
The figures will be massaged to death for the next 18 months. We will all be told that the government is on course, spending is up, unemployment is down and we are on our way. We will have an election and enough sheeple will believe the Daily Mail, the Times and he Telegraph stories that the austerity was necessary and the only way. No-one will mention three plus years of austerity ansolutely NOT working. No-one will mention 2.5 million unemployed, people on short time, part time or zero hours contracts and if they do, then this is because employers need this more flexible workforce so that we can compete with China, India and Pakistan.
I thought that we were going tohave an export lead recovery? I thought that a consumer lead debt financed economy was what got us into this mess in the first place?
I don’t want to compete with Inda and Pakistan. I want to lock horns with Germany. Proper industry, high tech and with products that the world wants; with commensurate rates of pay and pride.
What we are gong to get is internal misery (God help mortgage payers when interest rates begin to rise), the poor and disabled still being made to pay and demonised by the media while those wonderful people in the City continue to create wealth, for themselves, multinationals still avoiding their tax and the smug baskets in government smiling as they waste yet more money on their own expenses.
One last thing; I hear that the Royal households are in need of major repair. I hear that the budget holders for the Royals are spending more money than they take. Do I hear another bail out coming on? If the baskes cannot manage all that money then they should move into somewhere that they can afford and sell off the houses that they cannot. After all, we are all in it together and they should be treated no differently than anybody else.
LB
Consumer debt comes in two flavours. Mortgage which is back by house prices, and since we haven’t a negative equity situation, its irrelevant.
Unsecured personal credit. is more of a concern. 0.16 trillion
However look at what the numpties in westminster have done. 9 trillion of state debts, 270,000 per person.
No wonder Labour want to keep that a secret
LB
The figures will be massaged to death for the next …
http://www.if.org.uk/archives/2031/ons-reveals-full-uk-pension-liabilities
The results showed the extraordinary sums that Britain has committed to pay its future retirees. In total, the UK is committed to paying £7.1 trillion in pensions to people who are currently either already retired or still in the workforce.
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Not a peep out of Ed Balls.
LB
Carol, new taxes don’t solve it. Any more than a new tax solves syphilis to economic malaise.
9 trillion of state debts, pensions included.
They will never talk about that.