A recovery has been evident in the data for months and now it has finally been confirmed by the Office for National Statistics, but only just. It has just reported the economy grew by 0.1 per cent in the fourth quarter of 2009. Will it signal an end to the sniping between economists and the ONS over the quality of its data? Not really, economists think growth was faster and will expect the ONS to revise these figures higher in the months and years to come. But for now, what does this new data tell us about Britain’s economic prospects? Not much.
Monetary policy will not be changed. The Bank of England expected a recovery, one that was quite a bit faster than has been reported, but it will also expect these figures to be revised higher. The implication is that the Bank will do very little until the election, probably pausing the active process of purchasing assets under quantitative easing next week. Any further action will wait until the strength of the recovery is no longer distorted by the tightening of fiscal policy from January’s increase in value added tax back to 17.5 per cent.
The official figures show the growth rate to be a little below the government’s 0.3 per cent growth forecast for the fourth quarter and Alistair Darling, the chancellor, has made it clear he will not alter fiscal policy unless the economy does significantly better than forecast. Then, and only then, does he say a faster reduction in borrowing is his number one priority. So, no change here then. The Conservatives will not come out with details of their fiscal plans until the election is closer, if at all.
As far as the recovery is concerned, it is still fragile. Everyone accepts that. Weak banks, weak export markets and a desire to consolidate among households and government is not a recipe for an obvious boom. But with employment growing and unemployment falling, surveys strong, tax revenues bad but better than hoped and output now rising, there is every reason to expect a recovery. Britain’s past recoveries from recession have rarely been accompanied by rapid lending by banks, so there is little reason to expect anything different this time, nor to worry too much that it will be absent.
The big long-term question, for the world not Britain, is how can the vast majority of important economies – US, Japan, China, Germany, Britain, Spain, emerging economies and oil producers – all simultaneously hope for exports to grow faster than gross domestic product. Either someone must accept growing current account deficits or the world will be stuck in a low growth, low employment equilibrium.
This is my main concern about the global economy as I make my way to the World Economic Forum in Davos. Will this big question be addressed and resolved there? Probably not and no.
