Latest figures further undermine Osborne’s recovery strategy
It’s been a turbulent week for financial markets with the FTSE 100 index of leading shares crashing by triple figures for a record breaking four days before staging a recovery.
The US has been downgraded by one credit rating agency whilst the European Central Bank has been forced to intervene directly in the Spanish and Italian bond markets in order to drive down borrowing costs.
Amidst all of this drama (not to mention the rioting and looting in the UK) two important bits of economic news released yesterday risk being missed.
The UK trade balance (the difference between what we import and what we export) widened again in June. ‘Export-led’ growth has been a central aim of the Government’s economic strategy and from December last year until February exports did offset some of the domestic weakness. Since March however the trade deficit has been getting larger not smaller. Weak demand in the Eurozone and the US, our two largest trading partners, suggest that this trend could well continue.
At his March Budget George Osborne spoke of a recovery driven by the ‘march of the makers', and praised the contribution of manufacturing in a ‘rebalanced’ UK economy. Yesterday we also learned that manufacturing output fell in June by 0.4%, undershooting the consensus forecast of modest growth.
Manufacturing, which added to growth throughout 2010 and early 2011, actually fell in the second quarter of this year.
Taken together these two data releases are deeply troubling for the government. The economy has grown by only 0.2% over the past nine months and manufacturing (much of which is exported) has been one of the few bright spots.
Consumers are over-indebted, lacking in confidence and unwilling to spend. The government is cutting back on its own spending, and businesses (seeing no obvious demand for their wares) are reluctant to invest. If our export prospects are drying up then the UK economy faces not just weak domestic demand but weak external demand too. It’s becoming harder and harder to see where the growth will come from.
Duncan Weldon is senior policy officer at the TUC and blogs at Touchstone.
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