The bittersweet recovery
Recent good news in the form of stronger-than-expected short-term growth and rising employment does not mean that the structural weaknesses exposed by the 'Great Recession' have been eliminated. This briefing paper argues that a new economic model is needed to secure a robust and sustainable recovery that will benefit the whole country.
The UK economy is doing better now than at any time in the last three years. Real GDP increased at an annual rate of 3 per cent in the middle two quarters of 2013, and forecasters have been forced to revise up their estimates for growth in 2013 and 2014. Likewise, employment growth has outstripped even the most optimistic projections.
However, this good news needs to be seen in context: we are experiencing the slowest recovery in living memory, GDP remains below its pre-recession peak, and if real GDP had continued to grow in line with its pre-recession trend it would now be some 15 per cent higher than it actually is - and we would all be substantially better off as a result.
This paper examines the basis of this nascent recovery, and finds that:
- the falling unemployment rate masks substantial growth in the scale of both long-term unemployment and underemployment, as well as falling productivity levels and real median wages
- the chancellor's promised 'march of the makers' has come to very little in terms of the manufacturing sector's investment and exports
- the help to buy scheme is inflating growth and creating a new housing bubble financed by household debt
- the UK has internationally low rates of investment, which reflects the persistent short-termism of the country's businesses, and is exacerbated by the dominance of the financial sector.
It concludes that it is time for the UK to adopt a new economic model - one that will deliver better lives for the majority of the population, not just an elite few.