As the General Election approaches, each party would have us believe that they will make a better economy for Britain if they come to power. However, recent figures from the Institute of Fiscal Studies charting the performance of our economy paint a mixed picture, from which no party can take much comfort.
On the one hand, GDP (national income) in the period January – April this year, has grown by approximately 2.4%, rather better than other European Union countries. On the other, this increase represents only 0.3% real expansion of the economy over the last quarter of 2014, an indication that the “recovery” is at best fragile.
There are four main reasons for this slow rate of growth. In the first three months of the year there has been an unexpected slowing down in the construction industry, in large part due to the failure to accelerate new house building aimed at first time buyers. One reason for this is the poor profit earned by small jobbing builders who dominate a large part of the household construction industry. Oil and gas prices have remained low and overall there has been a decrease of 1.4% in manufacturing output – an indication that we remain uncompetitive and over-reliant on imports. Given the sluggishness and overvaluation of Sterling, exporting is extremely difficult. Exports to China and the US in both manufactured goods and services have been disappointing for the first quarter of the year.
Two thirds of the 0.3% growth in the UK economy has been from the continued expansion of high street retail food and household goods shopping, fuelled by falling prices in supermarkets. This sector of the economy depends on low skilled, low paid service industries (75% of the UK economy). Credit sales are still high, sustained by 0% interest rates.
One reason for the slowdown in recovery may be the confusion and uncertainty engendered by the election itself -particularly the unreliable economic promises made by the major parties over its very long and drawn out campaign, added to which is the uncertainty of our membership in the EU. Businesses simply do not like uncertainty.
The overall picture is that Britain continues to rely heavily on imported manufactured goods with an economy far too wedded to households retaining trade and credit rather than on the export of high value manufacturing exports. A dangerous prospect for whichever party “wins” on May 7th.
Terry Jones taught History to adult students taking Foundation courses at a College of Higher Education prior to their entry into full-time degree courses at Warwick and Coventry Universities. Since taking early retirement, he has travelled widely in Eastern Europe, pursuing a life-long interest in 19th and early 20th century European history. He has been a GCSE and "A" level tutor with OOL since 1996.