Ever since the days – long long ago – when Britain was an undisputed world leader in trade and finance, people have disagreed about the country’s
Ever since the days – long long ago – when Britain was an undisputed world leader in trade and finance, people have disagreed about the country’s economic performance.
To some, the period after World War II was a golden era of stability and growing prosperity. To others it symbolised Britain’s gradual decline from a once major industrial power.
Thirty years ago the Thatcher era was hailed as a triumph for free enterprise, when the UK was liberated from its union-controlled shackles. It was also castigated for creating an industrial wasteland, decimating manufacturing and destroying communities.
Today too, it’s argued that Britain is pulling successfully out of a long slump – but the recovery is described as patchy.
When the coalition government came to power five years ago, some experts were asking if the UK had become once again the sick man of Europe.
British Prime Minister David Cameron prescribed a mix of spending cuts, tax hikes and a public sector pay freeze as the medicine that the economy needed.
Now the recession is over. Economic growth stood at 2.8 percent last year, official figures from the UK’s Office for National Statistics show.
But is Britain’s economy really back on track?
House prices climbed by 5.2 percent over the past 12 months, the Nationwide Building Society said on April 29.
Those higher prices are, in turn, boosting consumer confidence, as homeowners decide to remortgage their properties and borrow money.
And the latest unemployment figures released on April 17 said the jobless rate was down to 5.6 percent.
That is the lowest level since July 2008, according the latest official figures. When Briton went to the polls in 2010, the figure stood at 7.9 percent.
All this amid the coalition’s austerity drive. Net government borrowing stood at 87.3 billion pounds (120.3 billion euros) in the 2014-15 financial year, or 4.8 per cent of gross domestic product.
That’s compared with £98.5bn in 2013-14, or 5.7 per cent of GDP
Soumaya Keynes, a research economist at Britain’s leading economic think-tank, the Institute for Fiscal Studies, said that the government has taken “some quite painful decisions” since coming to power.
“Obviously, the impact of those changes has meant lower benefits for some households. In the short run, if you cut spending or increase taxes then that might act as a drag on the economy. But if you had not done anything; then the public finances would not have been on a sustainable path,” she told euronews.
The IFS said in an April 2015 paper that “whoever forms the next government will have to finish the task of reducing borrowing back to sustainable levels.”
But what about the borrowing habits of ordinary people?
The Bank of England says unsecured debt rose to 239 billion pounds last year. (333 billion euros). It was 234 billion in 2008, the year the financial crisis struck the UK
It is a potentially lethal cocktail of low interest rates, student debt, cheap loans and credit cards.
“Beneath a lot of this growth, we can see that the engine’s not particularly firing on cylinders. A lot of this is driven by consumption,” said Peter Urwin, professor of applied economics at University of Westminster.
“People still, or a large proportion of the population, have still got houses that they bought which they have made an enormous amount of profit on. This has made them happy to go out spend a little more than they perhaps should do.”
Urwin told euronews that business investment has not picked up at a sufficiently fast pace to fuel future growth, adding that “there are still concerns – significant concerns – about the rate of productivity of the UK economy.”
Another part of the UK’s return-to-growth story is the country’s business and financial services sector.
Last year, services accounted for 79 percent of the country’s economic output.
Britain has long had a dominant services sector and that figure is roughly the same as in France, according to the CIA’s World Factbook.
It is a trend that has been reflected across the Western world as manufacturers look to produce more cheaply elsewhere.
But one of the coalition government’s big promises was to “rebalance” the economy so the country wasn’t overly reliant on the world of finance.
British Finance Minister George Osborne told the UK parliament in March 2011 that he wanted to spark a “march of the makers”, singling out manufacturing as a key growth sector.
Some have long lamented that Britain doesn’t make things anymore. But manufacturing actually accounts 10 percent of the economy.
Companies have just moved upmarket and upscale, employing less people in the sector than before.
Euronews visited Brompton Bicycle in West London. The company sells 45,000 bikes a year, 80 percent of them overseas.
Managing Director Will Butler-Adams said the government’s rebalancing act will take time.
“People imagine in business that some bloke turns up, they pay him about a million quid and suddenly he’s meant to fix the company in about six months. And they say the same about politicians. They rock up and we want it all sorted within two or five years. It’s complete tosh!,” he said.
“To turn the British economy round, from a manufacturing economy that was squeezed in the 1970s and 80s – there was no interest in the 70s and 80s in manufacturing. That was someone else’s job, not the UK’s job. There is a feeling now….a cross-party feeling, thanks to JLR (Jaguar Land Rover) in fact who are shoving a whole load of money into the British coffers where the parties are going ‘Hey-ho, this manufacturing malarkey is great. Look how much money we are making. We could do more of this.’
“So there is a recognition. But we’ve got a problem. There aren’t enough people studying it. The whole infrastructure isn’t there. The supply chain isn’t there. There’s no magic wand. It will take a generation to bring it back.”
So whether it is David Cameron or Ed Miliband who enters Downing Street, the next prime minister is going to face some pretty big economic challenges.
Further spending cuts could choke of the main sources in growth in the economy.
And with the eurozone debt crisis still casting a shadow over Britain’s main export market, there is still a long way to go before the next government can say the recovery has been fully secured.