Last week the Chancellor, George Osborne, warned that Britain’s recovery faces “a dangerous cocktail of new threats”. Back in November 2014 the Prime Minister and the Chancellor were preaching something similar. At that point, with the election just six months away, it could be read as a message to the people of Britain that whilst the economy was in recovery it was not in sufficiently rude health to risk entrusting it to another Labour government. Reading between the lines, what is the Chancellor pointing to on this occasion and should we all be worried?
Given the recent and ongoing issues with flooding in the UK, and the criticism the government has come under, it is likely that the comment is in part a defence of spending cuts. It is worth noting that if extreme weather is now ‘the norm’ then successive Governments, not just the Tories, are guilty of insufficient spending on flood defences. Nevertheless, Mr Osborne’s point may well be that to reach the Government’s goal of running a budget surplus, money has to be taken from somewhere else in order to fund additional spending on areas such as flood defences.
Pre-Christmas GDP figures suggested a slow-down in UK growth. There have also been tales of woe from the high street centred on a drop in footfall and spend. However, figures from Visa Europe show an overall spend increase of 2.3% compared with December 2014. The high street was undoubtedly hit. Firstly, by a switch to online purchasing and, secondly, because the money spent was on hotels, restaurants, bars and going out to places like the cinema rather than on clothes and footwear. Nevertheless, we should not lose sight of the fact that 2015 was the second best year for consumer spending since 2008.
The picture is not all rosy, of course. The perennial concern over the state of the UK housing market and its ever increasing prices continues unabated. Further afield, oil prices continue to plummet in conjunction with escalating tensions in the Middle East between Iran and Saudi Arabia. Global growth forecasts have also been revised downward, particularly for the emerging markets. The World Bank has just cut its prediction of global growth from 3.3% to 2.9% for this year and from 3.2% to 3.1% for next. Despite more shocking economic stories emanating from China in recent days the bank still sees China growing at 6.7%, which arguably puts some concerns in context.
Staying with forecasts but returning back to our own shores, most economists are still predicting a similar growth story this year to last in spite of December’s GDP figure and they are not always the most positive thinking members of society. Could it be an imminent interest rate rise that the Chancellor was preparing us for? It is unlikely. If the backdrop remains one of volatile markets, weakening global growth and a plunging oil price, the Bank of England will not be raising rates.
So, are there risks to our economy on the horizon? Yes. Should we be overly worried at this stage? Probably not. Of course, there is nothing wrong with the Chancellor pointing out potential icebergs in our path but there is no need to overreact.