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Is the UK economy turning a corner?
Chancellor tries to present a vision for growth that ‘commands the confidence of markets’ – and a sceptical public
John Healey has said Britain’s economy is finally “turning a corner” as he set out his mission to “make Great Britain growth Britain” again.
In his first major speech as chancellor, Healey sought to reassure the markets by pledging to stick to Labour’s tax and spend fiscal rules, while trying to present a more optimistic view of Britain’s economic prospects. But only days ago a global bond sell-off saw UK yields hit their highest level since the 2008 financial crash, further increasing the cost of borrowing for the UK government.
But Healey “begins with a credibility problem that is not entirely of his own making”, said Simon French in The Sunday Times. He is the eighth chancellor in 10 years, so many businesses, households and investors are “fatigued and sceptical” about yet another new vision for growth.
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“A glance at the news could easily reinforce the gloomy impression” that the UK economy is in dire straits, but some key indicators are “telling a more cheerful story – one of growth”, said James Moore in The i Paper.
There is a “surprising level of optimism” among businesses in the services and manufacturing sectors, with overall GDP growth expected to beat Bank of England forecasts for the third quarter, boosted by warm weather and the men’s football World Cup. The data shows “that UK plc is more resilient than anyone really expected in the face of the strong headwinds that it is battling against”.
There are tentative signs that “consumer confidence has also improved”, said Delphine Strauss in the Financial Times. Private new car registrations are up by almost a fifth compared to last summer, while earlier figures from the Bank of England show growth in consumer credit.
UK recruiters also saw hiring pick up in August for the first time in four years. It adds to “evidence that the UK’s weak jobs market was stabilising and business and consumer confidence were improving – albeit from a low base – before a renewed rise in gas prices and sovereign bond yields that again threatens to hold back the economy”.
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Most members of the public who describe the economy as broken “put its condition down to poor political priorities rather than to other reasons, such as global shocks, immigration or failings on the part of individual citizens (such as not working hard enough)”, said Anoosh Chakelian in The New Statesman.
Andy Burnham and his chancellor are constrained by costly rising debt – interest on debt costs more than the defence, Home Office and justice departments combined – rigid fiscal rules, and Labour’s manifesto pledge not to raise the three main taxes. But they need to find a way to pay for their ambitious policy platform “that commands the confidence of markets – and a public more and more convinced that the economy is broken by design”.
What next?
While the underlying numbers look positive, were the Bank of England to raise interest rates later this month, or Healey to announce tax rises in the Budget at the end of October, things could turn sour very quickly.
For now, the chancellor is trying to strike a more upbeat tone than his predecessor. After the equivalent speech in the last two years since Labour returned to power, the public has been “left with a clear message of tough times, and significant tax rises ahead”, said the BBC’s economics editor Faisal Islam. Today was different.
The chancellor is “trying to nurture some fragile early signs that confidence is returning” but “the burning question is how to fill multi-billion gaps in public finance plans before the Budget, in a way that minimises the economic impact.
