July 2, 2008
Why are Labour so confident about the economy?
It’s always the same when I meet Labour MPs, union officials, ministers, other party apparatchiks. They all think the economy will endure a rapid, shallow dip and then recover.
How can I put this politely?
They are almost certainly wrong. Or, at the least, fantastically over-optimistic. At all levels of government. To quote a piece by Jackie Ashley in last weekend’s Guardian: “He (Gordon Brown) still believes the economy will turn round in time. He’s been playing a long game all his life.”
Unfortunately, no one knows quite how long this economic game (let’s call it ‘amateur downhill off-piste’) will last.
With credible estimates of falling retail sales (see today’s 23 per cent collapse in M&S share price), rising unemployment, expensive mortgages, inflationary pressures, squeezed public finances, it is looking unlikely to be quickly. The prime minister has two years - by which time the next general election has to happen.
Did I mention falling house prices? (The share price of Taylor Wimpey, the largest housebuilder, fell by about 50 per cent today). They are a lead indicator of rising unemployment; not the other way around, as some try to pretend.
Experts now predict a 25 per cent house price fall, more or less, with the brunt of the correction taking place over….you guessed it….two years.
An election in May 2010 could take place against the gloomiest economic backdrop since 1993. If not decades earlier. There is a theory that the public trust Gordon when times are difficult. That may have been the case a year ago. But today?
It’s called ‘denial’.
Posted by: Westmonster | July 2nd, 2008 at 7:30 pm | Report this commentCould it be something to do with competitive devaluation of the pound against the euro. Industry to the rescue?
Posted by: Mike H | July 3rd, 2008 at 9:00 am | Report this commentDon’t worry. It will all balance over the cycle.
Posted by: Michael | July 3rd, 2008 at 1:05 pm | Report this commentIt is because they know the truth: Britain’s booming housing market was not generating wealth, just draining it. Over-priced housing is worse than tax on incomes. It drags down busines start-ups and makes it expensive for labour to move around. What Britain needs is a good old fashioned housing crash to get property re-priced to what it is worth. That in fact will be very good for the economy. It will mean people who are solvent will have more money in their pockets. Watch for the solvency-boom: all those people (like me) who are debt-free will spend like the gals in Sex in the City.
Posted by: Bob Macdonald | July 3rd, 2008 at 2:11 pm | Report this commentYou may well be right that the downturn will last longer than New Labour expects/hopes for. However, what will interest me is precisely how well the UK comes out of this compared with other major economies. My gut feel is that 20 years of Thatcher and New Labour has actually produced a pretty resilient economy, perhaps overdependent on the housing market. Why, for instant, is the ECB facing a worse inflation problem than the UK, despite our lowered exchange rate? Why, again, did the US get us into part of this mess by being unable to avoid semi-criminal excesses in their real estate markets - and can anyone excuse the Fed’s far too lax monetary policies?
My gut feel is that the UK will muddle through better than many of the other major economies, BUT that the scale of the world crisis means that this will not be enough to save Gordon (or successor) at the next election,
Posted by: Louis Turner | July 3rd, 2008 at 3:08 pm | Report this commentWishful thinking and pure ignorance and incompetence; sums up their time in office. Labour’s core competence is of spending lists and bureaucratic reviews - it knows nothing else. Its leadership is made up of compensation lawyers, academics and bureacrats. Not up to the job and never were. N.B. Blair got a 3rd class degree despite all that private education
Posted by: Steve Bell | July 5th, 2008 at 8:07 pm | Report this comment