Larry Elliott, Economics editor @ Guardian Newspaper, Published 8th December 2009
Problems mount for Darling as alarm sounds over surge in UK budget deficit
This item supports my opinion piece: Is Blue Collar Allergic now killing white collar creative’s?
House prices are booming, industry struggles and a ratings agency warns that it remains troubled by the size of Britain’s budget deficit. As he put the finishing touches to his third pre-budget report Alistair Darling could hardly have been given a starker reminder of the short and long-term challenges facing the economy.
Despite the boost from a cheaper pound, the Office for National Statistics said factory output stalled in October. The CBI employers group said manufacturers expected to trim production over the next few months. Meanwhile, Halifax – the UK’s biggest mortgage lender – said the cost of property rose by 1.4% last month. The price of the average house is up by £13,000 to almost £168,000 since the trough earlier in the year.
Little sign yet, in other words, of the rebalancing of the economy being sought by the government in the aftermath of the longest recession in modern history. The economy, as it prepares to exit the slump, looks pretty much like the economy as it went in, only with a smaller financial sector and a much-diminished industrial base. In his last budget speech in March 2007, Gordon Brown boasted that Britain was top of the G7 league table for growth after the longest period of sustained expansion since the dawn of the industrial age.
What the then chancellor did not say was that the boom was built on unsustainable activity in housing and financial services, and that if those twin engines stalled the economy would nosedive.
That was precisely what happened from August 2007 onwards – a period that has brutally exposed how dependent the UK was on debt-fuelled consumer spending and the speculative activities of the City of London. In the pre-crisis days, it was not seen as a problem that the financial and business sector – which includes not just the City but all its satellite sectors such as accountants, lawyers and PR firms – was responsible for almost half Britain’s growth. Far from it – the City was Britain’s cluster of excellence. In an increasingly integrated European single market, each country would specialise in what it did best and in the UK’s case that would be financial services.
The crash has re-opened an argument that has been raging off and on for the past century: does the size and power of the City stifle the other parts of the economy, preventing them from flourishing? After a decade in which the government pampered global finance, Labour now accepts the need for a more diversified economy.