News

Comment: UK economic recovery on track but rough waters ahead

Political uncertainty in the UK, rising inflation and a slowdown in Europe are all economic headwinds for the UK, the eighth Travolution Summit heard this week.

Louise Cooper, a chartered financial analyst and economic commentator, gave an upbeat assessment of how the UK has been recovering from the recession to date but warned: “There are possibly some rough waters ahead.

“I think politically we are in a bit of a mess ahead of the general election next year. It’s shaping up to be the most interesting election we have had for decades.”

Cooper dismissed the view that the recovery has been built on consumer spending, saying credit card debt levels are rising at a fifth of the pace seen during the credit boom of the 2000s.

And she said the UK economy had been steadily improving since early 2013 when gross domestic product passed the 2008 low point.

Bank of England data showed that business investment, trade and housing have joined household consumption in fuelling a broad and sustainable recovery, said Cooper.

But improving consumer confidence has levelled off in recent months amid signs of a slowdown and problems in Europe.

She added the UK faces a  threat from weak exports, hampered by a strong sterling, and “appalling” economic data from Germany that is fuelling concerns about a new recession in the eurozone.

“Consumer confidence has not really improved for the last six months,” she said. “Growth in consumption is a lot slower than it was in the credit boom of the noughties.

“Consumption is not going wild. We have got steady growth in consumption. What we always see in a recession is more people saving money.

“The household saving ratio is now starting to fall a little bit; I think that’s because consumers feel much more confident about spending.”

However, Cooper said the Bank of England base interest rate – currently at the historically low level of 0.5% – was too low, based on unrealistic expectations of inflation being kept under control.

She said key factors such as GDP growth, inflation and unemployment were now comparable to the average between 1997 and 2008, after the previous recession when the rate was 5%.

Cooper said a warning sign ought to come with any economic forecasts that take data from a complex array of sources and use mathematical formula to give an “illusion of accuracy”.

And she scoffed at official predictions from bodies such as the Bank of England, the Office for National Statistics (ONS) and the International Monetary Fund.

Delegates, said Cooper, would be better off consulting the astrologer Russell Grant about the future because the quality of economic data was so poor.

The accuracy of ONS wage data, which has led to claims that the recovery was not being felt in consumers’ pockets, was particularly questionable, she said.

“Anecdotally, there is a lot of evidence that wages are going up a lot more than official data suggests. I think the numbers are not picking up the true picture.”

With unemployment continuing to fall and now at about 6% – hitting that mark three years ahead of a Bank of England prediction in August 2013 – upward pressure on wages was inevitable.

“When unemployment gets to 6%, pure supply and demand indicates employers will need to pay more for labour,” Cooper said.

Share article

View Comments

Jacobs Media is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

The highest official awards for UK businesses since being established by royal warrant in 1965. Read more.