The 2012 London Olympics helped the economy grow modestly rise after three quarters of slipping growth. Luke MacGregor / Reuters
The 2012 London Olympics helped the economy grow modestly rise after three quarters of slipping growth. Luke MacGregor / Reuters

Signs of life in UK economy have David Cameron crowing



In an era of relentlessly gloomy economic analysis, it is understandable that the British prime minister, David Cameron, should have been in a hurry to announce a rare morsel of good news.

Breaking the customary embargo on commenting on official statistics before their publication, he rose in parliament to welcome a 1 per cent rise in GDP for the three months to the end of September.

Friendly politicians were ready to acclaim the morale-boosting statistic. And the loyally conservative Daily Express trumpeted: "Double dip recession is over as British recovery gets on track".

Other voices were more restrained. "Don't talk about green shoots", was the stern advice from The Economist, the august British news magazine that has been preaching the virtues of sound capitalism since it was founded by a thrifty Scottish businessman 170 years ago.

So is Britain entering recovery, and a sustainable if modest one, or not?

First it is necessary to look at the background against which Mr Cameron, jumping the gun by a day before the GDP increase was formally confirmed last week, welcomed Britain's unsteady step out of its second recession in two years.

Among less encouraging recent news reports from or about Britain: London braced itself for the worst as the UBS banking group planned to cut 10,000 jobs and others in the financial sector prepared for an autumn of sackings; another set of official statistics showed a decline of 13 per cent net income per head of the population; and doubts were cast by analysts on London's ability to protect its status as the world's leading financial centre while Britain keeps its distance from Europe's moves towards banking union

The stubborn flow of negative dispatches was enough to ensure a cautious response from more neutral observers.

There may have been no event called the "bounce event" at the London Olympics this summer, but even officials from Britain's treasury were careful to point out that the Olympic Bounce - its direct and indirect benefits - was among the one-off factors that helped produce the modest rise after three quarters of slipping growth.

This raised the question of whether it was necessarily a good time for the prime minister and his supporters to gloat about the state of the economy after two-and-a-half troubled years since he took power as the head of a Conservative-Liberal Democrat coalition.

Labour went into the 2010 election demoralised and discredited but now leads the polls as the coalition struggles with the effects of high employment, dwindling spending power and rock-bottom confidence.

But Mr Cameron turned on the opposition Labour leader Ed Miliband during sharp exchanges in parliament to declare: "The good news will keep coming. It is the Conservatives getting behind growth and jobs".

An economics columnist at The Observer newspaper noted that the prime minister's triumphalism sounded like "the clapped-out old politics of riding recovery to seal an election victory".

The Observer is no friend of the Conservatives, but in the same analysis, Mr Cameron's chancellor of the exchequer George Osborne, the man holding the national purse strings, was credited with a more measured response praising the "hard of work of millions of people and businesses".

The Economist found it unsurprising that any piece of good news would be snatched at, but added that "the latest figures exaggerate the economy's strength just as earlier figures had made it look unduly weak".

In the previous quarter, a fall in output was attributed principally to the loss of a working day when an extra bank holiday was added to mark the queen's 60 years of rule.

If the resumption of the normal calendar added as much as half a percentage point to GDP growth from July to September, the Olympics also made their contribution with ticket sales and hotel stays.

"Strip out these temporary influences and the economy's growth rate looks rather modest," said The Economist, which nevertheless identified signs of a "stirring economy" in a 1 per cent growth in retail sales, an 8 per cent year-on-year jump in September car sales and a fall in unemployment to below 8 per cent.

But it is a glaring feature of the post-2008 crisis that each item of good news is quickly overtaken by new setbacks. Last week, the electrical goods retailer Comet confirmed it was to go into administration, leaving up to 6,500 jobs and 240 stores at risk.

This, after a first half of the year in which almost 1,000 high street chain stores closed, was a severe blow for the retail sector. It was, however, offset by buck-the-trend news from Debenhams promising to open 17 new department stores and hire 1,700 staff.

Amid these contradictory signals, one man paid to be prudent about the way out of crisis is Sir Mervyn King, the governor of the Bank of England.

He also alluded to the Olympics factor. In a speech delivered to the South Wales chamber of commerce in Cardiff, he first recalled the beautiful singing of Welsh children broadcast during the opening ceremony of the Games.

"If the Olympics aimed to inspire a generation, the challenge for economic policymakers is to give that same generation the opportunities to make the best possible use of their talents in a vibrant economy," he said.

But he warned solemnly of the "huge adjustment" faced by major economies after a period of "lopsided expansion with growing trade deficits and debt levels and a collapse of their banking systems".

He described the "big picture" as being that GDP was still barely higher than two years ago and lagged 15 per cent below where steady growth since 2007 would have led. He talked of a "downward correction of expectations about future incomes and wealth".

Those children filmed singing the Welsh hymn Cym Rhondda would not have thanked him for adding that the scale of the necessary "adjustment" was such that "the generation we hope to inspire may live under its shadow for a long time to come".

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