In his commentary A depressingly familiar reality lies behind the UK’s economic miracle in the U.K. Telegraph, Jeremy Warner laments how the economic recovery engineered by Chancellor George Osborne and Prime Minister David Cameron looks a lot like the last economic recovery a few years back that ended in, well, you know, tears.
True enough, the economy is recovering fast, with a growth spurt which ought, absent of external shocks, to last well beyond the next election.
Unfortunately, it’s the wrong kind of growth again. What is more, Office for Budget Responsibility forecasts give little reason to suppose it’s about to change into something more lasting. The hoped-for revival in exports remains almost entirely absent from the feast of more upbeat OBR forecasts.
For at least the next five years, growth is predicted to depend entirely on rising household spending, a recovering housing market, and the questionable assumption of a trampoline-like bounce in business investment. Net trade is not expected to make any contribution at all.
More worrying still for those who think of the pre-crisis economy as a debt-fuelled ponzi scheme, rising private consumption looks as if it will again be bought with a return to very high levels of household debt and a pitifully inadequate savings rate.
This guilty return to pre-crisis norms is compounded by another surge in household indebtedness, which because of low mortgage market activity since the start of the crisis, had been mercifully moving back to tolerable levels.
Not any longer, according to the OBR. With a pronounced shove from government, mortgage lending is storming back. So too is double-digit house price inflation, necessitating larger average mortgages and rising household indebtedness.
Growth in unsecured credit, too, has picked up sharply, boosted by loans for car purchases, which have been flying off the books as if the recent banking crisis never really happened.
On both sides of the Atlantic, poicymakers are saying, “Hey, bubbles are all we got”.
Also, the question of the sustainability of the U.K. economic recovery notwithstanding, there’s not been much from Nobel Laureate economist and NY Times author Paul Krugman on the recent success of the austerity measures in the U.K. that were once thought to be doomed to fail. If there has been and I missed it, leave a comment…