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GDP up 0.6%, real wages down 9%. Why aren’t they on the streets?

It’s not often I think Ed Balls is too kind to Osborne, but his response to Osborne’s ‘UK economy on the mend’ after a meagre 0.6% second quarter growth rate is one of those occasions. Presumably he was afraid of being accused by the Tories of talking down the economy if he said the truth that this so-called ‘recovery’ is pathetic after 3 years and still very fragile. But really he should be pointing out the facts that Britain’s situation is still parlous and will almost certainly worsen again soon because the foundations of a genuine recovery are simply not there and none of the lessons of the 2008-9 financial crash have been learnt.

First, put 0.6% into perspective. Including this last quarter, over the whole 3-year period that the Tories have been in power the average quarterly rate of growth has been 0.17%. By comparison in the 4 quarters before the election in 2010 the Labour government achieved an average quarterly rate of growth of 0.5%, three times higher, but that was stopped in its tracks by Osborne’s love affair with austerity.

Second, even after this media-choreographed inflation of ‘recovery’, the UK economy is still, 5 years after the recession began, 3.3% below the output level it achieved just before the bankers’ ramp crashed in 2008. By comparison again, most of the eurozone countries (including Germany and France) which Osborne likes to blame for his travails have already recovered their pre-crisis levels of output.

Third, Osborne may complain that whilst the economy may have flatlined for nearly 3 years, it’s not the average over those 3 years that counts, but rather the latest trend upwards, and all sectors in the economy have contributed to it. However, of this 0.6% latest quarter growth, 77% came from the services sector and only 13% from industry and 8% from construction. Again, to put this in perspective, construction having fallen by 15% since mid-2007 (when the crisis began) then in this last quarter contributed just 0.05% to this latest ‘recovery’ and industry having fallen 14% contributed 0.08%.

As to services, the great majority is provided by the finance sector, but this is now bloated on a very false and insecure base. The FTSE-100 index has now exceeded its pre-crisis peak of June 2007, yet not only is the economy vastly less buoyant than then, but this financial balloon is largely based on colossal State subsidies to the banks in the form of quantitative easing and will rapidly deflate once these QE subsidies are steadily withdrawn (or ‘tapered’ as the US Federal Reserve euphemistically calls it). This asset bubble deflation, aggravated further by Osborne’s ill-judged Help to Buy scam, will then drain out demand and reverse any imagined ‘recovery’.

The hard lesson remains: until there is a genuine increase in demand in the economy – and with a 9% collapse in real wages, greater even than in the 1930s, that is impossible – there will be no sustainable recovery. Sooner or later this insane impasse in economic policy driven by Osborne’s austerity will be broken on the streets.

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