Roger Bootle: Let us be thankful for the recovery, even if it is lopsided
Comment of the Day

December 31 2013

Commentary by David Fuller

Roger Bootle: Let us be thankful for the recovery, even if it is lopsided

Here is a brief sample from an article by one of the Britain’s best economists (although he said he had a bad year in 2013) giving his UK forecasts for 2014 via The Telegraph:

There must be a chance that over the coming year unemployment will fall below the 7pc rate laid out by the Monetary Policy Committee (MPC) as a threshold to be reached before it will consider raising interest rates.  

But the MPC has been at pains to stress that the 7pc rate is not an automatic trigger for rate rises.

One of the key developments of next year will be the increasing realisation that the economy can keep growing for some time without increased inflationary pressure, and therefore that interest rates do not have to rise, even when unemployment falls well below the 7pc marker.

If I have a worry, it is over the continued lopsidedness of the recovery. I suspect our trade balance will deteriorate and this will put a question mark over how sustainable the recovery is. That will not help investment to grow.

Overall, I am optimistic about 2014. My worries lie beyond the immediate horizon, when the housing market bubbles over and, mixing my metaphors, the chickens come home to roost.

For the time being, though, let us all rejoice that the UK is recovering, even if the recovery is not quite the ideal shape. For even unbalanced mercies, let us all be thankful.

David Fuller's view

My hunch is that this errs slightly on the pessimistic side, partly as the UK has a chance of marginally improving Europe’s economic direction and its own role within the EU, with the help of Germany and other Northern European economies.  Eurozone economies have managed to hold their single currency zone together, at least so far, to the surprise (horror) of many, not least within the UK.  

Eurozone political and business leaders are now understandably more amenable to an economic policy rethink.  The ECB is also fortunate to have one of the truly outstanding central bank presidents in Mario Draghi.  The UK has benefited from importing Canada’s top central banker, Mark Carney, as Governor of the BoE.

Assuming that Roger Bootle’s predictions above are reasonably accurate, and not derailed by an outside exogenous event such as a 2007-style spike in the price of crude oil or a Nasdaq bubble in the USA, 2014 should be reasonable year for the UK and also European stock markets.  After all, some volatility aside, they are still in recovery mode, are cheaper than Wall Street and monetary policy will remain accommodative. 

My concern for the UK is with 2015, when the next General Election occurs.  If this were to take place next week, we would have another economically incompetent and even more leftwing Labour government.  It is easy to criticise the Conservative coalition government, and I have, not least for its zealously green energy policy, the costs of which have resulted in considerable economic hardship.   

Prime Minister David Cameron is decent enough but squeezed by the global economic crisis, his Conservative member’s resentment of the coalition government formed with Liberal Democrats, unfavourable electoral boundary issues which they prevented him from changing, and the comparatively new UK Independence Party which siphons more voters from the Tories than any other party. 

The Government’s one strength is the UK’s economic recovery, for which Chancellor of the Exchequer George Osborne deserves considerable credit.  This has reduced unemployment but has not yet been strong enough to improve incomes in line with cost of living increases.   


Happy New Year to all subscribers.  I wish you a peaceful, healthy and prosperous 2014.

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