x Abu Dhabi, UAESaturday 20 January 2018

Brighter days at last for UK, but let's not get carried away

Even before a Briton claimed the Wimbledon mens' crown for the first time in 77 years, there were reasons to be cheerful in London in the summer of 2013.

Britons celebrated Andy Murray's victory at Wimbledon with impromptu street parties. Kirsty Wigglesworth / AP Photo
Britons celebrated Andy Murray's victory at Wimbledon with impromptu street parties. Kirsty Wigglesworth / AP Photo

Even before a Briton claimed the Wimbledon men's crown for the first time in 77 years, there were reasons to be cheerful in London in the summer of 2013.

The sun was shining at last, and there were also, after several soggy, gloom-laden years, some signs that the British economy was heading in the right direction again.

Austerity was the last thing on anybody's mind in the impromptu street parties that broke out across the city after Andy Murray's tennis victory.

The country is hoping that the most recent dose of government-applied austerity - the public spending cuts announced in a budget review last month - will be the final instalment of an economic policy that has been criticised for making the economic downturn worse.

Although it seems contrarian for a government that has stuck rigidly to a formula of debt reduction and spending cuts, with a general election less than two years away there is a feeling that the time might be right for a little neo-Keynesian economic stimulus.

Against that more optimistic background, the economic indicators are mainly heading into positive territory. The Financial Times reported on July 1 that manufacturing activity rose by the greatest amount in two years last month, and figures for new orders seemed to indicate buoyant conditions would remain throughout the summer.

The greatest improvements came in textiles and clothing, and the food and drink sectors. This could be confirmed by a stroll along Oxford Street, where hordes of shoppers were cramming the fashion shops, and on to Covent Garden, where pavement restaurants were doing a roaring trade in brilliant sunshine.

Trade figures for May were also slightly better than expected, pointing to a stronger pace of export growth. This was in contrast to statistics from Germany showing a weakening export market. Nothing cheers up a Brit as much as evidence that the Germans are doing badly.

Furthermore, there seems to be a sea change in economists' thinking regarding the British pound. Sterling has had a torrid summer so far, weakening from $1.57 in mid-June to a low of $1.48 last week. There was talk of another "sterling crisis", often the harbinger of economic downturn in the past.

But now the experts are talking of a "line in the sand" for the British pound at about $1.50, and do not expect sterling to fall below that level for the rest of the year.

Some analysts are looking at 2 per cent growth in GDP for the year. Not exactly a high-growth scenario, but a welcome relief after the backward or negative trend that has become the norm.

So is it back to business as usual in the UK? Perhaps, but some pessimists fear that the country has learnt little from the crisis and recession that followed. The twin dangers of easy credit and excessive consumption are still very much in evidence.

A rise in manufacturing figures does not so much suggest a revival of Britain's engineering or construction industries as a return to the kind of conspicuous consumption that got Britain into trouble in the first place, and which was much in evidence in Oxford Street and Covent Garden. An economic recovery cannot be built solely on a new summer outfit and an alfresco pizza.

Add in another set of manufacturing data, this time from the government, showing a decline of 0.8 per cent in May, and it is easy to see how precarious this rebound will be.

The property market, which was the real source of evil in the run-up to the crisis, is still in the historic doldrums, outside the super-prime areas of the south-east. People who were once first- time buyers are now more likely to be long-term renters, put off by high prices and a reluctance to grant mortgages against all but the most prime assets.

So while the signs are looking good for Britain, scratch below the surface and the recovery looks a little hollow. Perhaps the UK will have to await a real global economic turnaround, especially among its key euro-zone trading partners, before the summer of 2013 can be called a real watershed.