If Chancellor Philip Hammond was hoping for some good economic news with which to kick off the Tory conference, he will have been disappointed.
It was all looking so well at the end of last week when the Governor of the Bank of England, Mark Carney was drawn into suggesting that interest rates would soon rise:
“If the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates will increase.”
The tone of the interview itself was more nuanced. Carney spent as much time highlighting a series of growing debt problems and hinting at continuing risks in the banking sector. Nevertheless, most of the media chose to latch onto the “relatively near-term” interest rate rises as proof that the economy was picking up.
Then the Office for National Statistics went and spoiled the party by introducing some data into the discussion. As James Sillars at Sky News reports:
“The Office for National Statistics (ONS) said while it continued to measure quarter-on-quarter growth of 0.3% between April and June, the annual growth rate for gross domestic product (GDP) was 1.5%.
“It had given an earlier estimate of 1.7% and said it represented the weakest annual growth performance since 2013 despite an uplift in its original readings for business investment and exports.”
Had a G8 economy turned in an annual growth rate of just 1.5 percent (which now includes the drug trade and prostitution to bump up the number) in the years prior to the crash of 2008, it would have been seen as an economic basket case. In the strange post-crash world, it is viewed as a sign of an economy that is healthy enough for the central bank to “take its foot off the accelerator.”
In reality, Mark Carney may have simply learned the US Federal Bank’s strategy for shoring up a weak currency during the Obama years. The Fed spent the best part of four years signalling imminent interest rate rises without actually doing them. The result was that each announcement was followed by a jump in the value of the dollar. However, when the “data-dependent” Fed held its interest rate meeting, it would find some data that demonstrated that the economy was still just a bit too weak… maybe next time. This may be born out in the Sillars article, which reports that:
“Chris Williamson, chief business economist at IHS Markit, said: ‘From a recent historical perspective, since the Bank of England’s independence, it would be unprecedented for the central bank to tighten policy with the data pointing to such anaemic economic growth’.”
No doubt the Chancellor will find some data – such as headline unemployment – to suggest that all is well. Nevertheless, after seven years of misguided austerity, the British economy (particularly outside London) is still in a depression in which inflation continues to grow faster than GDP, productivity and wages. Government debt continues to rise; and public services are breaking down. And, of course, casting a dark shadow over everything is the looming Brexit-related downturn in eighteen months’ time.