Confused? Not just me then!

Posted by Nigel Wilson on 6 October 2014 | Comments

I wonder how many people find the current economic picture confusing. We hear almost daily how well the UK economy is currently performing, now that we're out of the recession. Our GDP is apparently one of the highest in Europe.

Yet the reality it would seem to many people is that they hardly feel better off. Wages have generally remained the same since 2007/8, with an erosion in household disposable incomes.

The headline rate of inflation is very low, including food. Energy and fuel prices are also constant.

The latest factory PMI (Purchasing Managers Index), in contrast to expectation, has shown a fall in factory growth, and also in the Services sector.

Interest rates have remained at a staggeringly low rate for over five years. Almost every month the Governor of the Bank of England talks about the need for rates to rise, although the criteria for doing so is akin to moving goal posts. However, what is for certain is that interest rates will rise, most likely next year. This will have a knock-on negative effect pushing disposable incomes even lower.

The ONS (Office for National Statistics) last week admitted a revision in its figures. It would seem the recession was less worse than appeared, and the recovery also apparently started sooner. Yet borrowing (public sector excluding banks) has increased this fiscal year in comparison to last year (£45.4 billion against £42.8 billion), which for a government engaged in reducing the deficit, is somewhat embarrassing.

One of the possible causes is lower tax revenues, partially resulting from the increase in personal allowance to £10,000.

Yet the government is promising reductions in income tax during the next parliament, moving the personal allowance threshold up to £12,500, and the 40% tax bracket will move up to incomes of £50,000+. In spite of the deficit reduction strategy, it would seem votes are to be attracted on the basis of lower future taxes.

Frankly it would seem that none of the political parties have a cohesive economic strategy. The short-term need to win votes has overshadowed long-term policy.

Furthermore, if there is a referendum on whether the UK should leave the EC, economic uncertainty will proliferate during the run-up. We saw the effect the Scottish referendum had, albeit short-term thankfully. The fact that there was a 'wake-up' call only in the few weeks prior to the referendum underlines the naivety in recognising the potential effect it could have had on the economy.

So where does this leave us? The upshot it would seem is that we have a fragile economic recovery, with further future uncertainty. The stock market during the past year has been largely flat, with any gains wiped out by similar sized losses. The housing market appears to have slowed. Consumer spending and retail sales have shown only very modest growth.

Wouldn't it be great if we had a consistent economic approach, with accurate statistics to build from. Although times remain difficult, the confidence and trust that would be created could at least give us hope. But that I guess is living in cloud cuckoo land. Our current crop of politicians across all parties are failing us. No wonder people question the worth of democracy!