In his Mansion House speech this week, George Osborne, chancellor of the exchequer, declared that the British economy is healing. But he also argued that the recovery still needs to be secured, and that policymakers need to continue to treat the ailments that brought it low in the first place.
The chancellor is right. There is strong evidence that prospects for the UK economy are, at last, looking up. A variety of indicators – of business and household sentiment,retail and car sales, housing market conditions and of the labour market – all suggest that the recovery is underway and is hopefully becoming self-sustaining.
This is unequivocally good news, though nothing should be taken for granted. We have been here before – notably in 2010, when the economy grew at around its trend rate for nine months, only for recovery to sadly evaporate. Three years later, some headwinds persist, such as the deleveraging that is still to be done – most obviously by the public sector, but probably by the private sector too. And there are other risks too, not least that of another flare-up of stress in continental Europe. Continue reading »