No rose-tinted glasses for the Economics Editor of the Sunday Times, London.
An unseasonable chill has descended on the economy. Britain’s once-rampant consumers are minding the pennies, proof to me at least that there is a link between the housing market and people’s willingness to spend. The flatter the former, the more subdued the latter.
Businesses are also glum. Business confidence normally rises in the spring as the sap rises but, according to the Institute of Directors, it has fallen sharply since January. The CBI reports a slump in industrial orders in its latest quarterly survey, alongside the sharpest rise in costs for a decade.
All this could be temporary..
But it is possible, too, that we have reached a turning point, and that this general election will mark the end of the period of apparently easy economic success that Britain has enjoyed since the early 1990s...
The seven fat years in which spending has grown faster than the economy as a whole may be followed by seven lean years, as financial insecurity, tax increases and the need to service the debt built up over the past few years hits home. Mervyn King warned of this two years ago, in his first interview on taking over as Bank of England governor. He may now be proved right...
But the big worry comes not on the demand side but on the supply side. Britain’s tax burden is fast converging with Europe’s, as the Engineering Employers’ Federation points out in its business manifesto. In 1997 there was an eight-point difference between Britain’s tax burden (revenues as a proportion of GDP) and the EU average. By next year, according to OECD figures, it will be down to three points, and closing...
The National Institute of Economic and Social Research, in a new assessment of Labour’s economic record, finds much to praise. But in comparison with France and America, the two other countries it looks at, the record is not that special. Britain has had the highest inflation rate of the three; growth has been slightly higher than in France but weaker than in America; productivity growth has merely matched France but, again, has lagged America...
Britain, according to the analysis, is running out of “growth-positive” factors, the job-market flexibility and other supply-side measures introduced in the 1980s, and is running into a series of “growth- negative” headwinds. They include, as well as higher taxes and the re- regulation of the economy, factors such as education, openness to migrant workers and the degree of dependence on imported energy.
Rebuttals welcome.
UPDATE: Calculated Risk links to a Financial Times report suggesting that for now the Continent is still leading the downbeat news sweepstakes:
Manufacturing in the eurozone contracted in April for the first time in 20 months, highlighting the scale of the economic slowdown across the region and adding to fears that some member states might even be facing recession, according to a survey on Monday. The fall in the eurozone purchasing managers' index for the second month running, from 50.4 in March to 49.2, is the latest evidence of a significant slowdown in growth in the second quarter of this year, largely as a result of the energy-price shock.