During the past five years, there have been plenty of false dawns for the UK economy. At one time or another, surveys seem to have suggested that the UK has finally shaken itself out of the slump, only for poor official data to contradict them. Ministers are all but banned from talking about ‘green shoots’ for fear that they will over-egg any improvement, raising expectations too far. But, in the past week or so, there have been renewed signs that this time, at last, the recovery may really have taken hold.
Regular readers will know that I am not the biggest fan of purchasing managers’ indices (PMIs) – essentially, a small-sample survey measure of ups minus downs (people reporting improvements minus those reporting deterioration). And the poor track record of these indicators means that today’s claim that manufacturing is ‘booming again’ from Markit, the firm that produces the PMIs, needs to be taken with more than a pinch of salt. After all, manufacturing output is still almost 10% below its pre-recession peak.
But even bad indicators can sometimes give the right broad signal. And there are signs from other, more reliable sources that economic conditions are improving. The Engineering Employers’ Federation, for instance, has also seen an uptick in demand among its members, and the CBI and BCC as well. The even better news is that other countries are also seeing stronger growth in the tradeables sector, with Chinese manufacturing rebounding in recent months and even euro area factory orders increasing in August.
Given that the manufacturing sector has lagged behind in many advanced economies, with service sectors having to (continue to) support overall activity, these improvements are both welcome and timely. Stronger production is unlikely to signal a proper rebalancing of the UK economy towards exports and investment, given the structural issues that we have still done nothing to address. But after three years of going nowhere under the Coalition’s policies, unbalanced growth is still some growth, after all.
This will doubtless fuel talk of the economy recovering at the right time, given the election in 2015. But we should not forget the needless pain and suffering that the Coalition has inflicted over the past three years. Indeed, one reason why the UK economy is now picking up momentum is that this is the first year during this parliament when there is no fiscal squeeze. As Osborne starts pruning the public sector again during 2014, growth will once again take a clobbering. The hope, this time around, will be that the rest of the world is strong enough to help prop us up.