October 23, 2014
Mixed messages on UK recovery
For The Herald
Victory for the Conservative government? Britain’s economy is growing
LONDON — As electorates, we are so often reminded that actions speak louder than words. Our politicians, our elected representatives, are not only expected to promise, but to deliver. The gap between these two positions, the promise and the deliverable change, is the space in which the narrative is created through the media.
In austerity Britain, the narrative is simple: the country must recover, and this recovery will happen through economic growth. All politics occurs in that context. The incumbent coalition government must prove that it knows what it is doing through delivering on the promises it makes, while its opponents must claim convincingly that they can do better. The situation is not complex; the difficulty is that the deliverables are so often intangible.
The news that the UK economy has experienced the fastest growth since 2007, and over four consecutive financial quarters for the first time since before the financial crisis in 2008, can only be seen as a victory for the government.
The announcement made on January 28 by the Office of National Statistics (ONS) indicates that the UK economy grew by 0.7 percent in the last three months of 2013, leading to an annual growth of 1.9 percent. According to the preliminary report, output levels in the fourth quarter were 2.8 percent higher than in 2012, although productivity remains low, as pointed out by the ONS and other commentators.
The news fits well with what has been the Conservative-led government’s narrative since taking office in 2010. Hard choices have been made under Chancellor George Osborne, who basked in the glow of the January 28 announcement.
Speaking to the House of Commons, Osborne insisted that the GDP figures were “evidence that our long term economic plan is working” and described growth as “a boost for the economic security of hardworking people.”
The chancellor’s belligerently optimistic portrayal of growth was also tempered, as it usually is, with a warning that any straying from the economic path chosen by the coalition government would be catastrophic.
“The job is not done, and it is clear that the biggest risk now to the economy would be abandoning the plan that’s delivering jobs and a brighter economic future,” said Osborne, who was backed up by the Prime Minister when David Cameron stated that the figures “are another sign our long-term economic plan is working — more growth means more jobs, security and opportunities for people.”
The government’s enthusiasm for the apparently rapid growth of the British economy follows the comments made in the previous week at the Davos international forum by Cameron, Osborne and Bank of England governor Mark Carney.
The suggestion that the Bank may raise interest rates ahead of its 2016 target due to falling unemployment was quashed by Carney, when he continued the narrative of cautious optimism by describing the British economy as being short of “escape velocity.”
This is the problem with the government’s narrative. It wants to celebrate growth without losing a grip of the austerity measures that have been implemented in order to achieve the same growth.
The gap between celebration and austerity is explicable for two reasons: it gives Cameron and his government the opportunity to drum up new business; and it avoids more uncomfortable truths about the reality faced in the UK that the economy may be growing, but people’s lives are not getting better, nor will they for some time.
Speaking at Davos on January 24, Cameron praised foreign investment in the UK for playing a fundamental role in the British economic recovery, placing the country in a wider global context. The Prime Minister compared British recovery with the US and the accompanying development of the shale oil and gas industry, describing it as a “fresh driver” for growth.
These comments follow statements made on January 13 in which Cameron described opponents of fracking as “irrational” and suggested that councils in affected areas could receive tax breaks.
Also at Davos, on January 23, Osborne called on British businesses to put their “front foot forward” in terms of investing in the economy. According to The Guardian, the chancellor said that the government had created a favourable economic environment and wanted these businesses to “stand up and be counted.”
The message would appear to be clear: the Conservatives have achieved a level of stability, and now investment (both local and foreign) will be key to pushing the economy forward.
It will be interesting to see how this narrative develops in 2014, and Osborne has already used the growth statistics to attack his opposite number, Ed Balls, who on the weekend proposed the implementation of a 50 percent tax rate.
The proposal, criticized by many in the London for being anti-business, was wielded by the chancellor on January 28 when he described the government as being “unabashedly pro-business.” Labour, on the other hand, are “anti-recovery, anti-jobs and anti the British people,” claimed Osborne, who rarely misses an opportunity to antagonize Balls and the opposition.
However, it is a narrative chosen by Ed Miliband and Labour that currently threatens to undermine the good feeling generated by economic growth: the cost of living crisis. Unemployment may have fallen to 7.1 percent, but according to Bank of England statistics, wages are currently increasing by 0.9 percent, less than half of inflation (2 percent in December 2013).
The January 28 figures also show that growth in the last quarter actually slowed when compared to the preceding quarters, as GDP still remains “well below” pre-crisis levels, according to ONS analysts.
The result is a confluence of mixed messages. The narrative presented by the government is that the economy is growing, but investments are needed to reinforce this growth and ensure its sustainability for both local and foreign businesses.
Meanwhile, while Labour fail to convince with their economic proposals, their tagline of a crisis of cost of living has found purchase with the British public, despite investment rates being kept low. The rates are being kept low to encourage people to save more — despite the fact they are still being paid less.
At times like these, GDP growth is encouraging, but in reality, the British economy still has a long way to go. The challenge for Cameron, Osborne and Miliband is to pick the right narratives to convince the public that they know how to stay the course or the intangible recovery will remain exactly that.