Economic slump could return Tories to power says Howard

"The economy for most of the Brown chancellorship was driven by an extraordinary rise in house prices that fuelled personal borrowing"

There's more to the UK's economic problems than Brown would have us believe.........

"UK has only itself to blame for slowdown

By : Bill Jamieson October 02, 2005 . The Business Online

IT WAS really only a question of when, not if, Chancellor Gordon Brown would invoke those twin terrors of blame-dodging economics for our evident troubles at home: global slowdown and dearer oil. They have the advantages of being both familiar and foreign. And, of course, both are outside the chancellor's control. He is the innocent, helpless victim, mindfully busy spinning and weaving at the Treasury only to be buffeted by alien forces out of a clear blue sky. Things had been going fine, or such was the impression given at the Labour Party conference last week, until the terrible twins struck.

Only after the keynote speeches of Tony Blair and Brown did we learn how bad the damage is: the sharpest monthly fall in the Confederation of British Industry's (CBI's) Distributive Trades Survey since it was started 22 years ago, and a downward revision to gross domestic product (GDP) growth to 1.5%, its lowest for 12 years.

"Global slowdown" may itself be a consequence of higher oil prices. But it is a useful shorthand that signals both the wider ways in which dearer petrol hurts our economy and the sense of malignity from a distance.

France and Germany came in for particular scorn in the Prime Minister's speech to the Labour Party conference last week. But it is to the lacklustre French growth rate that the UK has now fallen. (Was it not to those leading economies in the euro zone to which the Prime Minister was once so insistent that we drew irreversibly closer through the euro?)

Now it is certainly true that dearer oil and poor growth in Europe are not good for our economy. But these are by no means the only influences, or indeed the main ones, on our recent performance. Certainly, the more money we have to spend on petrol, the less is available for spending in the High Street. But here we have suffered somewhat less of a shock than other economies.

The percentage increase in petrol prices that UK consumers have had to face has been less than in the United States, for example, due to the very substantial element of tax that has long made up the price in Britain. Yet the slump in consumer spending growth in Britain has been more marked than in the US, and so cannot reasonably be explained away by the oil price effect alone. Nor has the oil price spike alarmed the Bank of England's Monetary Policy Committee (MPC) sufficiently to jack up interest rates. The UK is oil neutral, being a marginal oil exporter in nominal terms. MPC policy is to accommodate the first-round impact of higher oil prices and be on the look-out for any second-round effects. So far, wage settlements have not picked up speed.

What, then, is the extent of the influence of the world economy on Britain's performance? GDP growth in the US last year was 4.4% cent against just 1.8% growth in the euro zone, while Japan recorded a GDP rise of 2.9%. This year is indeed set to see a slowdown, not just because of oil but because other major economies such as the US have been growing at close to capacity.

But even taking the latest available GDP figures, the Treasury would be hard pushed to defend an assertion that "global slowdown" is a major cause of Britain's declining growth rate.

Many of the world's leading economies such as China and India are barnstorming ahead with growth rates of 9.5% and 7% respectively. America is growing at 3.6% and US consumption is expected to remain relatively strong throughout 2005. Almost all the developing country economies, which are coming to account for a greater share of global business and trade, are still performing strongly, with growth rates of between 3% and 6%.

Britain by contrast has fallen back to a growth rate of 1.5% despite the fact that global GDP is rising faster. World trade is still set to grow by some 8% this year. And for all the Prime Minister's new-found despair at Europe's economic ills, Britain's export performance has not in fact been that bad. Indeed, there is a prospect that the growth in export volumes may well exceed that of imports this year, so that net trade could well be a positive to our GDP this year.

Nevertheless, the euro zone stands out as one of slowest growing regions of the world with a growth rate currently of 1.1%. This is the bloc to which Britain's political and administrative elite remain fatefully wedded, as if the China-India story was irrelevant or of no real consequence. In fact, it is re-writing the economic map of the world. If the "problem" for Britain before the slowdown was that the China boom was "sucking out" growth from the UK, it cannot now be advanced that a China slowdown may also be responsible for causing our economy to falter.

So what is it that is largely responsible for the slowdown in the UK? And why is the Chancellor so keen to disguise it? One of the biggest shortfalls from the Treasury budget forecasts for 2005 is in private consumption. Against a forecast of 2.5% growth in the Budget, the estimated out-turn in the second quarter was 1.6%.

Growth has slowed because of a retrenchment forced on the household sector by higher interest rates (that deflated the house price bubble) and the squeeze on disposable incomes. The economy for most of the Brown chancellorship was driven by an extraordinary rise in house prices that fuelled personal borrowing.

For all that earnest rhetoric from the Treasury about productivity and investment-driven growth, Britain is more than ever a B&Q economy. The UK household sector debt/income ratio is at a record high and the highest in the Group of Seven big industrial economies.

The result is a slowdown for which the government has to take responsibility. Global slowdown and dearer oil are only partial explanations. Brown economics have waxed and waned with house prices. To this extent there has been no "step change" or "change maker" at No 11. That may be the harsher truth the Chancellor wants to hide."

In other words with only 20% of voters voting for labour at the last election and still they got a 70 seat majority it takes a disaster for them to be kicked out. Even Robert Mugabe would be embarrassed by those figues.

Howard is in denial about the voting system.

Oh I don't think that is fair. A lot of people (although myself excluded ) voted Labour in '97 because they were fed up with the fat cattism and corruption which Labour had highlighted AND they genuinely wanted to see improvements in public services.

Unfortunately 18 years in the wilderness had left Labour with few politicians competent to properly run their departments - they hadn't done a great job with the townhalls they had been running either.

Of course today's problems could be part-blamed on Ken Clarke for relaxing fiscal policy in the 95-97 period in order to win the election. Something GB did nothing to correct when he came to power.

I have to agree with that, he has been in the house for years but has hardly made his mark in that time.

Oh come on! It was about time those greedy wicked bastards in stinking rich global corporations like err... Marconi and Rover got what was coming.

When Brown raised tax this ruled out any upturn in the economy which is a pity really cos he's been borrowing like there's no tomorrow on the strength of it. Then he spent all the money employing PC d******s like the NHS manager whose job is tell us we can't coo at babies anymore cos it intrudes on their privacy.

Talk about clueless.

On 2 Oct 2005 08:16:01 -0700, "allan tracy" mysteriously appeared thru the usenet mist to inform us thus...

I'm sure those little babies find cooing very offensive! No doubt the NHS manager carried out very expensive consultancy research to prove this.

I think it's pure arrogance of power.

Unlike the ones in previous Labour gov't who did such a splendid job? :)

In message , James Hammerton writes

John Major was meant to lose the 92 election, then Labour would have made the same decisions as the Conservatives over the ERM and would have made a similar c*ck-up of it and thus they would have lost the '97 election. However, Kinnock did a better job of losing that election than Major, as they said on Spitting Image on election night, 'is the country ready for a leader with ginger pubes?'