Even before Andy Murray lifted spirits with his Wimbledon victory, the feel-good factor had returned to Britain, as the latest data suggested an economic recovery is finally here. Almost two-thirds of members of the Institute of Directors think the outlook is brighter than at any time since 2008. Barclaycard says consumer spending rose at its highest rate in 18 months in June. Improved data from the housing market may be boosting household confidence. House prices, as measured by Halifax, are growing at 3.7% a year, a three-year high. The International Monetary Fund (IMF) nudged up its 2013 UK GDP estimate – from 0.6% to 0.9%.
But May’s manufacturing surveys were disappointing, given the upbeat tone of recent surveys. The sector shrank for a second month in a row. May’s trade deficit, moreover, was the widest monthly shortfall this year. Sterling fell to a three-year low against the dollar, undermined by new Bank of England governor Mark Carney’s ‘forward guidance’.
What the commentators said
The sun’s out and things are looking up, but no one seems to have told the manufacturers, said Heather Stewart in The Guardian. Neither do companies seem to be making inroads into profitable new markets. Goods exports to non-EU states have been at a record high for the past three months. But the list of the top ten destinations for our exports is “depressingly familiar”. We sold more goods to Belgium in May than to China and remain heavily dependent on the depressed EU.
The government has been hoping to oversee a change from a consumer-led, spendthrift economy to a production-based, exporting powerhouse. But now, said Heather, especially after the chancellor launched the ‘Help to Buy’ scheme to boost the housing market, “there must be a fear that the long-hoped-for recovery comes from the same old debt-fuelled, unbalanced growth the Coalition claims to deplore”.
But even our latest consumer-led bounce has limited potential, said Capital Economics. Real earnings look set to fall for another year or so and people have been dipping into their savings to fund spending. Household savings as a percentage of disposable income fell to 4% in the first quarter, the lowest figure since early 2009. “Households can’t keep saving less forever.” So not only do we have “the wrong sort of growth”, as Jeremy Warner put it in The Daily Telegraph – we probably won’t have it for all that long.