News Column

Leading Article: UK economy: Snatching at the political dividend

January 25, 2014

British politics has gone from a long period of ridiculous neglect of the economic indicators to an equally dangerous overdosing on them. For the best part of 20 years, up to the collapse of Lehman Brothers in autumn 2008, official economic statistics, surveys and forecasts came and went with hardly any attention at all. Front-page stories about economic statistics seemed to belong to the distant past. Then the banking system caved in and the developed world went into recession. Soon everything changed. Statistics that had been treated as uninteresting since the crises of the early 1980s - inflation, growth, unemployment and economic confidence - suddenly became important again. Now, more than five years later, every latest indicator is news, the stuff of headlines, expert comment and argument and political spin. We have gone from one extreme to another. The reality is that none of this is going to change any time soon. With just over 15 months to go before the general election, and with the election battle hingeing so much on rival economic narratives, every monthly and quarterly snapshot will be put under the microscope with growing intensity, something that happened regularly in the Harold Wilson and Margaret Thatcher eras, but only rarely since. There is nothing to be gained by complaining about this. In any case, in most respects it is better to pay attention to the indicators than to ignore them, as happened in the boom years when people had other things to distract them. But we need to recognise that there are also dangers in the current frenzy for micro-examination of the politics and economics of the indicators. The biggest of these dangers is that they are fetishised, with far too much significance attached to every monthly or quarterly snapshot. The deeper problem is that, by focusing so hard on each particular set of figures, we risk losing sight of the larger picture and the general direction of economic travel. The government's claims about real terms rises in take-home pay this week fall squarely into that category. It is simply not true that pay is currently rising faster than prices. At the last measure in November 2013 , wages were rising by 0.9% while inflation, measured by the consumer prices index (CPI), was rising by 2.1%. Yesterday's government figures argue that this fails to take account of income tax cuts and net - as opposed to gross - pay. On that basis, says the government, all except the very richest saw take-home pay rise by 2.5% compared with a CPI rate of 2.4% for the same period. That period, however, ended in April 2013 , not November. Since last April, wage growth has declined. And if one uses the retail prices index (RPI) as opposed to the CPI as the measure of inflation, the picture is less positive too, since the RPI rise to April 2013 was 2.9%. The government is not pushing these claims because it wishes to win an intellectual argument but because it is trying win a political one. Every ministerial statement about the recovery is, not unreasonably, shaped by election strategy. Yet the political argument is less of a zero-sum game than it appears at first sight. We are in anti-political times. The polls are showing that strong economic numbers do not mechanistically translate into strong political ratings for the Tories. Consumer confidence -and the stock market - remain fragile. Ministers claim too much too soon at their peril. The balancing act may get harder. If growth is too strong, pressure mounts for a brake on the housing market, perhaps a cut in interest rates. This is the last thing that David Cameron wants on the threshold of an election. But Mark Carney's credibility as governor of the Bank of England may depend on it. These may feel like long-awaited good times for the Conservatives on the economy. But they should not snatch at the political dividend too greedily. Credibility invariably rests on the measured approach.


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Source: Guardian (UK)


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