GDP figures for Q2 2011 will be announced this week. The UK economy is very unlikely to slip back into recession. If anything, that development is a worst case scenario. Instead, the increased consumption of fuel and food, partly caused by a growing workforce and a rising population, will be enough to see the UK GDP figures remain modestly positive.
It is true that exports will not be healthy, but other than in our immediate past when were they ever? Not since 1994-5 was PMI so consistently above 55. Construction is also going to be weaker, as is non-food retail expenditure. Essentially, the three things that helped get us out of recession will no longer be the main drivers of growth. The reasons for this are clear. A flailing Euro-zone, a stagnant housing market and an unhealthy concoction of inflation and wage freezes, mean that the UK economy will be virtually at stand still. What is perhaps most alarming of all is that we have almost lost our number one customer. Few businesses survive that, thus when George Osborne as the procurement officer for the state stops purchasing our ware the game must surely be up?
Well no not quite, because George Osborne has a plan. The Thatcherite model of the 1980s will return with full vigour. This is an unhealthy blend of allowing a small number of multi-nationals to rack up huge profits, and to hope the trickledown effect that job creation brings will be enough to see us through. This plan might be unethical but it is not completely daft. For instance, the banking, oil and pharmaceutical industries are such vital sectors of our economy. And at the moment they are less hurt by weak consumer spending than one would think. Much of our oil companies' profits are made overseas and they will not be hurt by rising prices. So too the banking sector while not having the luxury of the large profits that the high risk bonus culture brought they will still have their investment/speculation profits as well as their continued guaranteed share of the UK market. This is not to say they will return to record profits of 2007 but it is worth remembering that they are coming off a low base. Also, with guaranteed spending for the NHS at £122bn, and the continuing options to develop overseas markets, our pharmaceutical industry can still be relied upon to create growth. Thus, the oligarchical nature of profit making in the UK may well record modest growth but it will make little material difference to the general economic well being of the UK ordinary citizens.
The other aspect of Thatcherism that is already returning in full thrust is the creation of a large number of unskilled low paid menial jobs. On average 42% of our retail expenditure is exchanged in food stores, and 75% of our retail expenditure overall is spent in companies that employ more than 100 people. Britain may well be a nation of shopkeepers but those stores are no longer your corner shops, they are instead big retail food stores often out of town. The surge in low skilled job creation combined with the customers' concentrated expenditure on a small number of food retail companies, means that our hope of creating knowledge based economy is disappearing fast. The rapid consumerisation of higher education as well as the cuts to financial support for young adults at secondary school inevitably means that the appeal of a lucrative minimum wage job in a food store will be the manna of our youth.
The solution to this quagmire is simple. The state needs to put its dummy back into the pram, and increase capital expenditure on infrastructural projects including affordable housing. The consequential job creation together with increased consumer expenditure will steer us towards sustainable growth.