Sunday, June 30, 2019
Ten years of recovery, yet not a happy anniversary
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

This is an important moment. Ten years ago, 10 years tomorrow to be precise, Britain’s economy began to crawl, bleary-eyed, out of the deepest recession since the Second World War. The anniversary brings with it questions. How strong, or weak, has the recovery been? What kind of recovery, in terms of sectors of the economy, was it? And, the question I get asked most often, how long can it last?

The recovery itself was slow to get going. I well remember the concern, in those dark days of 2009, when it appeared that other economies had begun their post-crisis recoveries but Britain had not. Initial figures from the Office for National Statistics (ONS), indeed, suggested that the upturn started later. Its first estimate for the third quarter of 2009 was a drop of 0.4% in gross domestic product, a sixth successive quarterly decline, and economists were criticised for predicting a small GDP increase.

The economists were right. ONS figures now show that GDP edged up by 0.1% in that third quarter of 2009, giving way to somewhat stronger growth later. It has not been unbroken growth. In 2012 there were small GDP declines in the second and fourth quarters. Because they were not consecutive they did not count as a recession, though initial figures from the ONS did show that the recovery “double-dipped” back into recession in 2012 and was on the brink of a “triple-dip” recession.

On the basis of the latest ONS figures, which include last week’s revisions to growth rates up to 2016, the economy has achieved an average growth rate of 1.9% over the past 10 years. Its strongest years were 2014 and 2015, its weakest was last year. You can draw your own conclusions about that.

The growth average over this recovery, 1.9%, compares with 2.8% over the long recovery from 1992 to 2008, which was brought to an end by the financial crisis, and 2.9% for the 1981-90 recovery under Margaret Thatcher. Growth has been around a percentage point lower on average, than during those two previous upturns. One caveat, though it is a small one, is that recent figures are more prone to revision.

A below-par recovery has happened despite an exceptional monetary stimulus. Every member of the monetary policy committee (MPC) who voted to cut interest rates to 0.5% in March 2009 would at the time have been astonished to think they would be only fractionally higher, at 0.75%, now. None of them, by the way, is still on the MPC. There has been £435bn of quantitative easing.

That has saved the economy from even weaker growth. The fact that growth has not been stronger would be put down by some to deficit-reduction, or austerity. Nobody would seriously argue against the proposition that a fiscal tightening will give you weaker growth than otherwise, but it would also be wrong to attach all the blame for the growth disappointment to fiscal policy. The hangovers from the crisis, particularly the banking hangover, played a big part and the causes of productivity stagnation run deep, and are for another day.

The big winner in the recovery is, perhaps surprisingly, the construction sector. Based on the latest figures, its output is 34% up on the mid-2009 trough, though only 11% up on the pre-2008-9 recession peak. Service sector output is up by 22% and 17% respectively, and has the most consistent performance.

Manufacturing has been the poor relation; its output is up by only 10% since mid-2009 and is down by 3% compared with the pre-recession peak.

Does this recovery still have legs? Ten years is a long time, and this is now a mature recovery, though as noted it is not as long as the 16-year upturn that preceded the crisis.

It remains possible that when the statistics are available in a few weeks’ time, this will turn out to have been a very downbeat anniversary. After two successive monthly GDP declines, the arithmetic is challenging for the second quarter, which ends today, and the National Institute of Economic and Social Research predicts a 0.2% GDP decline, though the Bank of England expects a 0.2% increase.

The news from some sectors of the economy is grim. Car manufacturing so far this year is down by 21% on last year. The CBI’s distributive trades survey said retail sales volumes in the year to this month fell at their fastest pace since March 2009, when the economy was mired in recession, though adding that some of that may have been due to exceptionally strong comparators a year ago. Consumer confidence has weakened across the board, according to the latest GfK index.

What we can say with certainty is that growth, at best, has slowed to a crawl. Recoveries do not die of old age. This recovery is not under threat from a sudden and aggressive hike in interest rates from the Bank, the kind of thing that has sounded the death knell for previous upturns, though the investment weakness of the past three years, coupled with a reduced flow of EU workers, has increased the Bank’s concerns about the amount of spare capacity in the economy.

It is under threat from a related self-inflicted wound. Though I think we will avoid it, and Boris Johnson has said that the chances of a no-deal Brexit are a million to one, the more that people and businesses fear it the more it will exert a downward influence on the economy. This 10-year anniversary could be a lot happier than it is.