It is to be hoped that the economy recovers as quickly as the Chancellor of the Exchequer. Less than a fortnight ago, Alistair Darling’s time at the Treasury looked over. There can rarely have been such a rapid improvement in political fate and, just to add to Mr Darling’s sunny disposition, it looks like the British economy could be improving too. When he predicted that the British economy would return to growth by the end of 2009, most economic authorities declared that to be a fond hope. Yet it is possible that Mr Darling may have been right.
It is, as yet, not much to go on but the National Institute for Economic and Social Research estimated this week that the economy grew by 0.1 per cent in May, after a rise of 0.2 per cent in April. These data follow the Office for National Statistics figures for UK manufacturing output, which increased by 0.2 per cent in March and 0.3 per cent in April. The Council of Mortgage Lenders reported that loans increased by 16 per cent in April. The pound has recovered strongly against the dollar and the euro.
If March does turn out to have been the trough of the downturn, gross domestic product in the second quarter of the year could be flat or even show slight growth. That would contrast with the fall of 1.9 per cent in the first quarter and would be enough, technically at least, to call an end to the recession. That does not mean that the recession will, therefore, cease to be the central fact of economic and political life simply because it has, technically, ended.
The most conspicuous lagging indicator of a recession is unemployment. There are already 2.2 million people out of work and that number is likely to go on rising for some time yet. There are very many more people for whom this recession will soon go from an abstraction to a painful reality. They will hardly be consoled by the suggestion that the recession is over. For them, it has not even started.
There is also the possibility that these slivers of good news are a false prospectus for recovery. The Chancellor himself has expressed his concern that oil prices have again climbed above $70 a barrel. The balance sheets of the banks are still awash with toxic assets. Lending is still sluggish and even the improvement in industrial production may now lapse — if the output increases reflect the offloading of accumulated stocks, there may be delay as inventories are built up again. Then there is the likelihood that the Treasury’s forecasts for the years after this one are still too optimistic. If they are then the five-year path to stable public finances that the Chancellor continues to say he has set outbegins to look very rocky indeed.
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It may be that the recession is, in fact, only the prelude to the necessary hard choices in economic policy. The fiscal stimulus and quantitative easing have released money into the economy and the recession automatically deploys the stabilising effect of increased welfare payments. But when the economy returns to a sustainable path of growth, genuine fiscal discipline will be imperative. It will also be easy to avoid.
It is difficult to imagine genuine financial prudence from a prime minister who is intent on dividing himself from his opponents by constant reference to how much money his Government is prepared to spend.