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“The economy is finally producing as much as it did on the eve of the crisis in 2008,” said the Bank of England’s governor this week. Official GDP figures are likely to confirm Mark Carney’s judgment on Friday morning. But even if the figures come in just short, George Osborne will indeed soon enough be able to boast that the British economy is bigger than ever.
This will be quite a moment, for politics if nothing else. No independent economist nor even Ed Balls ever denied that there would be a recovery in the end, but Mr Osborne will nonetheless enjoy reminding his critics about slogans suggesting that his cuts were killing the economy. Two big reservations should be applied to the coming boasts about Britain bouncing back. First, over a full seven years the economy advanced not one jot, a longer pause than any in modern times. From smartphones to video conferencing, the forward march of technology has continued, but so much output vanished that there’s no sign of this progress in the GDP figures. All the goods and the services that could have been produced but weren’t are lost for good. The second caveat is that the population has grown considerably since 2008, so the newly restored economic pie now has to be divvied up between many more mouths. That leaves a smaller sliver for each. And most voters in next year’s election will be more concerned about their own living standards than any national aggregate.
So it could yet turn out that the recovery has come too late for Mr Osborne. But coming it undoubtedly is, and – barring some further shock – average living standards should also start to advance soon. The white light of a statistical average can, however, compress a rainbow of experiences – and especially in this recovery. The immediate effect of the downturn was widely shared, with 5%-plus of the real pay of middle managers and burger-flippers alike disappearing. While benefits were maintained in 2008-09, the most exposed families were actually relatively well protected. So during the recession itself, which produced less unemployment than past downturns, Britons really were all in it together.
The iniquity was produced not so much by the disease itself, but rather the treatment. The money that quantitative easing magicked up on the electronic printing press poured into housing and financial assets, swelling the wealth of those that already have. The austerity programme, increasingly trained on benefits as time goes by, makes the poor poorer. And Britain’s businesses have taken the chance that the slump afforded to push pay down and insecurity up across much of the workforce. Indeed, the latest Monetary Policy Committee minutes highlighted stagnant wages as the chief obstacle in the way of inoculating the recovery against bubbling over into inflation, by raising interest rates.
This next prescription could, according to frightening and authoritative Resolution Foundation analysis this week, see the recovery visit upon British society some of the evils that were to a remarkable extent avoided in the recession itself, not least the mass repossession of homes. Years of ultra-cheap rates have nulled the pain of stagnation, but have not been used to pay down as much of the debt overhang as they should have been – and especially not among families of modest means, who have needed all the scarce resources at their disposal to keep their head above water, leaving nothing to repair the balance sheet. With even the gentle interest-rate rise the markets expect, a quarter of mortgaged households will be left with hard-to-manage debts. Unlike the credit crunch, this is one disaster that can be seen coming. If the right provisions are put in place – obliging lenders to offer vulnerable borrowers five-year fixed deals, establishing schemes where the state can pay interest in return for a stake in mortgaged properties – the worst effects can still be avoided.
Having failed to protect society from the effects of economic stagnation, Britain still has a chance to ensure that the recovery pans out more happily.
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