At long last, some good news about the economy. Official GDP figures report growth of one per cent between July and September – the best quarterly performance in five years, and confirmation that the UK economy is out of recession.
The government has presented the return of growth as a vindication of its economic strategy. George Osborne, keen to display the upside of austerity, claimed rising GDP showed Britain was ‘on the right track’. By dealing with the country’s debt, he suggested, the government has stabilised the economy and allowed it to recover.
This narrative is loaded with potential; it enables David Cameron to stride into the next election on a slogan of ‘growing economy, shrinking debt’. Yet the idea that the government has rescued the economy stretches credulity to its limits. When a measly one per cent rate of growth is welcomed like the Second Coming, you know the economy remains in trouble.
It should not be forgotten when the last recession began. Though it seemed to be painfully protracted, the downturn in the UK economy halted in 2009 before resuming in 2011. Thus, for two years, tentative growth replaced recession.
Why the economy fell back into negative territory is a source of debate; international factors such as the Eurozone crisis are often credibly cited. Yet the billions taken out of the domestic economy by Cameron’s government surely played a part in stifling the ‘green shoots’ of recovery and plunging the economy back into recession.
For the government to seek plaudits for ending a recession it helped create is palpably absurd. Its austerity programme has inflicted great pain on the economy and will continue to do so; though out of recession, the UK economy faces the prospect of a long period of economic stagnation and malaise.
Consumer demand, the fuel needed for growth, has been weakened by policies such as the rise in VAT to 20 percent and public-sector pay freezes. Unemployment, another drag on demand, remains high, despite recent signs of improvement.
The government pursued austerity to restore confidence in the economy; yet the unease of markets and investors will linger if economic activity lags. A change of course is required; as a recent IMF report suggested, the government should ease the tightening of public spending. This would give scope for using greater public investment to stimulate employment and demand.
Though the government has channelled public investment through programmes such as the Regional Growth Fund, its efforts have been modest. The tendency in policy is to rely on the private sector; hence why a relaxation of planning laws is introduced instead of public-financed house-building schemes.
The Olympics, a major factor behind the return of growth, demonstrated a real alternative: an ambitious public project that regenerated a whole area and provided a significant boost to regional employment.
Yet there is to be no repeat of this approach; despite the country’s excellent credit rating, borrowing to finance large public projects is flatly ruled out. As a result, the economy is choked by austerity instead of given a breath of life.
Cameron must be held to account for this. His government has done lasting damage to the economy and left ordinary people to suffer the consequences. one per cent growth, though welcome, gives no reason to support him.