Every time the latest GDP figures appear, the Treasury would have us use the occasion to look at the sunny image of the economy in the round.
The third quarter data indeed confirms that the economy is on track to grow by 2.4% this year and many City economists have pencilled in 2.5% next year. Even the Office for Budget Responsibility (OBR), reckoned a cautious forecaster, has picked 2.4% as the most-likely growth rate.
There is little doubt that every member of the eurozone would gladly hand over another slice of sovereignty in exchange for such stellar growth. But a more detailed look presents a different picture: a two-speed economy, with the services sector pushing ahead while manufacturing industry continues its long, slow slide.
The struggle to sell abroad seems to have been the main drag on factory output in the last quarter, although one quarter does not make a trend and the export figures have proved hugely volatile over the past 18 months.
But what we can say is that manufacturing has been struggling since the summer of 2014 and the wild swings in export performance have probably played a part.
Exporters hate volatility and none more so than manufacturers. They rightly say that investment is a long-term commitment. With a government determined to retrenching and leaving the private sector to fend for itself, R&D and capital spending budgets are likely to be cut.
Business lobby groups have blamed the 12% rise in the trade-weighted value of the pound over the past year and near 20% appreciation against the euro. It must have an effect, they say.
The Bank of England’s repeated warnings over the past year of looming interest rate rises will also have dissuaded manufacturers from investing. Not so much because it will increase the cost of credit, but for the simple reason that it will further push up the value of sterling. The recent volte face indicating that interest rates will probably not rise until well into next year has not removed the threat, but instead added to the uncertainty.
Meanwhile, the services sector grew robustly with the help of consumers who are simultaneously increasing their borrowing and running down their savings.
Most Bank policymakers will take growth in any form, rather than argue over the balance between making things and buying them. In their regulatory role, they plan to limit the rush to easy credit. Not by too much, though. A large rise in household borrowing underpins the UK recovery, according to the OBR.
Government spending is also due to play a stronger role in supporting growth over the next three years after George Osborne relaxed his plans to chop tax credits and slash Whitehall budgets. Most of his spending cuts are still in place, leading anti-poverty campaigners to maintain their anti-austerity protests.
But credit ratings agency Fitch was unnerved. It warned that Osborne would be less able to cushion the economy from a further global downturn now he planned to spend the gains from higher growth before it had even arrived.
“Debt reduction is increasingly being driven by growth and revenue trends, which could reverse if growth slows or revenue forecasts are revised back down,” the agency said.
So it seems that six years after the recession, the economy is still unable to survive without ultra low interest rates, soaring household borrowing and a government running a sizeable funding deficit. Expect the economy to become ever more unbalanced.
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