Ever since chancellor Norman Lamont, in 1991, claimed to have detected “the green shoots of economic spring”, commentators have been wary of making prematurely optimistic assessments. So, nobody in Number 11 or any other fiscally engaged venue is likely to cue dancing in the streets over the latest mildly encouraging economic figures. They come with a comprehensive health warning, but the fact remains that they are significant, if not as green shoots, at least as straws in the wind.
Analysts have been surprised by the Office for National Statistics’ preliminary estimate of economic growth for November at 0.1 per cent. In normal circumstances, that would be a poor performance by a G7 economy that is also the sixth largest in the world. But the significance of this early assessment is that Q3 of 2022 registered negative growth: if the same were to happen in Q4, two consecutive quarters of negative growth would take the UK into recession.
Now, however, with growth at 0.5 per cent in October and November tentatively showing minute growth, only a truly disastrous December could fulfil the doom merchants’ predictions of recession. That seems unlikely, with retailers reporting a better Christmas than they had expected. Of course, even this desired outcome – a final quarter of 2022 in modest growth – would not alter the fact that the British economy is in an unhealthy condition, the only G7 economy not to have returned to pre-pandemic levels of GDP.
Yet these calculations, in real terms, are offset by the elephant in the room: the dramatic plunge in energy prices. Just six months ago, the developed world was swept by a grande peur provoked by soaring energy costs. Call it a “black swan” episode or “Events, dear boy, events”, the crisis provoked by Russia’s invasion of Ukraine threatened a surge in energy costs that the West might not be able to survive. Power cuts, bankruptcies, elderly people killed by hypothermia, production brought to a halt, transport paralysed – these were not wild, alarmist fears such as we have been subjected to over climate change, but real-life existential threats that deeply concerned some of the coolest heads advising Western governments.
Now, thanks to having moved fast on our feet, reinstated diversity in energy supply, in defiance of the doctrinaire objections of the Just Stop Oil fanatics, and the natural operation of global markets, what seemed an impending extinction event last autumn has grown tame. Gas prices have fallen by nearly 80 per cent since last August: at the start of 2023 the benchmark TTF contract fell below €70 per megawatt hour, a return to pre-Ukraine invasion levels.
For the government, this is an unlooked-for bonanza. When Boris Johnson turned on the spigot of energy price support – one piece of expensive intervention to which there seemed no alternative – appalled fiscal disciplinarians warned of an additional government debt of up to £140bn. Already, a much lower figure of £38bn is being canvassed as gas prices return to normal. Energy is a volatile market and there could still be some challenges ahead, but the important thing is that the biggest single threat to Britain’s return to economic growth is no longer suspended like the Sword of Damocles over our heads.
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Since the rise in energy costs was the chief factor driving our production sector into recession, with output falling 0.5 per cent last November, this relief from outlandish energy prices could re-energise UK productivity, the crucial driver of growth.
What of the other pillar of economic obstruction: inflation? It is still high, at 10.6 per cent, but slightly down from 11.1 per cent last October and going in the right direction. However, arguably this is a rod that the British population is now making for its own back. Strikes, above-inflation wage demands and pay settlements run the risk of giving inflation a fresh lease of life in the UK, after it subsides elsewhere.
The problem runs much deeper than old 1970s-style militancy: a new phenomenon of voluntary non-participation in the workforce by qualified people is presenting a threat to the economy. There are now 5.2 million people receiving out-of-work benefits. Some plead long-term illness, much of it presumably “long Covid”. But there is less excuse than ever before for those partially disadvantaged people to shun employment, when working from home has become so widely acceptable. The knee-jerk reaction is to replace these absentees with immigrant labour, irresponsibly ignoring the extra strain that would place on the NHS and other services.
The NHS is an exemplar of dysfunctional Britain. To recognise that reality is not to disparage the heroic efforts of clinicians to cope with unsustainable challenges, but an acknowledgement that, in their interests as much as anyone else’s, we cannot keep tipping shedloads of taxpayers’ money into a dysfunctional and unaccountable bureaucracy whose managers exploit its fetishised status. This winter has shown that the NHS has become a life-threatening black hole that must urgently be reformed.
Meanwhile, economic recovery will depend, as it always does, on our struggling SMEs. The Government should listen to their concerns, rather than to the corporate magnates of lobby groups such as the CBI. Last month the CBI forecast “a lost decade of growth”, with business investment by the end of 2024 expected to be 9 per cent below pre-pandemic level and output per worker 2 per cent lower.
How, in the current confusion, can such figures be predicted with any accuracy? It is obvious the Confederation hugely underestimated the potential fall in energy prices. The CBI has been wrong in its forecasts so many times that it is almost encouraging when it produces a negative estimate.
Britain’s economy is undoubtedly facing formidable headwinds, close upon the deadly blow of Covid lockdown and the Ukraine war. There is also the added fear that if China does manage to crank up it’s huge, powerful manufacturing machine, we might see another lift-off in inflation. For now, that seems unlikely.
Yet the country is sailing into the eye of a storm and all hatches should be battened down. That means ridding ourselves of the fatuous, grandstanding commitment to “net zero”. There is no real argument about Net Zero: we simply cannot afford this £1 trillion extravagance, therefore it will not happen. We would do well to acknowledge that now and devise a more nuanced, practical scheme, abandoning the UN “one size fits all” approach and addressing climate threats specific to Britain (e.g. sea level rises).
Increasingly, there are catastrophist prophets not only in the climate industry, but in the business world as well. An extreme example is Nouriel Roubini, whose latest book “Megathreats” seizes the Greta Thunberg slot in economics. Roubini is right about many things – excessive debt, for example – but his complaint that “deglobalisation” is to be deplored already sounds old-fashioned and out of step with reality. “Globalisation offered great promise and real achievements,” he claims. Yes, until, under the stress of the very threats he proclaims, it proved unsustainable in relation to business’s most crucial source of dependency: supply chains.
Another area where a new spirit of realism is needed is industrial relations. We cannot allow Britain to become a 1970s re-enactment society for the entertainment of militant trade union nostalgists. This is no way to conduct business in 2023.
How our businesses will fare this year remains to be seen: a couple of slightly less awful than expected statistics does not mean we are on the road to recovery. But if we do manage to avoid a recession, however narrowly, it will give business a much-needed psychological boost and additional encouragement to hesitant investors. It is all still to play for.
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