28 Jan 2014

Playing ‘long-term plan’ bingo with George Osborne

Today’s growth numbers are another Goldilocks number for the government. Not too cold as to suggest a faltering recovery, nor too hot to call for a dampening of consumer excess, and immediate interest rises.

2013 now appears to be a year of solid private sector growth, extra jobs, and though far from perfect, it compares favourably with almost every other advanced nation.

Some people might not like what is happening to the squeezed middle, or welfare recipients etc, but the UK in the past year undoubtedly compares well with other countries.

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Should the chancellor take credit for this? It might be argued that he should only take as much credit for 2013, as he took the blame for 2011 and 2012, ie not much.

In a laboratory in Oxford the journalists lining up to interview the chancellor were playing “long-term plan” bingo. Rarely does a sentence pass George Osborne’s lips without the phrase being uttered.

But it is abundantly clear that over the three years of his chancellorship the shape of the recovery is far from what his long-term plan envisaged. This chart from the GDP release today shows


that since Q2 2010, the service sector is 6 per cent larger, and the production (ie manufacturing) and construction sectors are have shrunk around 3 per cent each. This is not rebalancing. This is already existing imbalances, further imbalancing.

In his interviews today the chancellor was adamant that “growth is broadly balanced” but “the job is not done”. I put the numbers in the above chart to the chancellor, saying that rebalancing has failed.

“There has been a rebalancing between public and private sector: one part of the rebalancing,” he said. But in recent days, Mr Osborne has conceded that more needs to be done on export industries. Indeed November showed the worst current account deficit since 1989.

He has referred to “the handover” of the baton of growth from the consumer to producer. When Mark Carney first arrived at the Bank of England, he rather candidly told me that the recovery would be kindled in the consumer, with the help of forward guidance, and then with that foundation, it would be easier to get companies to spend cash on business investment, to raise productivity, raise real wages and then rebalance the economy.

That is why maintaining low interest rates, despite the 7 per cent threshold, is vital to the Osborne project. Inside the Bank of England, they have steered clear of trying to claim credit for the economic, confidence and employment impact of forward guidance. But they do think it has had an impact, and it is true that survey measures of the economy are off the scale.

Forward guidance may not have worked as planned in monetary policy credibility terms. But with record employment growth, and a solid four plus quarters of growth under way, the BoE and Treasury do think it has worked to excite demand and confidence in the economy generally.

So when will “the handover” (sounds like a bad Hollywood comedy) actually happen? The chancellor’s argument appears to be that with the “job not half done” he will be the man to deliver that shift, after the next election.

His aides point to the very latest stream of data showing fast balanced growth (though more than half of the 0.7 per cent Q4 growth came from a subset of services called “business services and finance” – 0.4 per cent).

If you believe that the government’s policies contributed to further imbalances, it might appear a little cheeky to argue: “Vote for me and I will rebalance the economy I further imbalanced.”

But for now, compared to the last years, some solid growth is far better than flatlining. Two speeds better than none.

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