By John Charles Dyer, UK Correspondent
On 25 October 2012 the UK’s Bureau of National Statistics announced a 1% growth in GDP during a single quarter, the quarter ending 30 September.
Chancellor Osborne and Prime Minister Cameron downplayed the figure. Challenges lie ahead. But both described it as proof the economy "is healing.” They are "on the right track."
Business Secretary Vince Cable warned that the UK is far from health. Cable opined the UK "got into this mess" from relying on consumer debt. Now it must "rebalance" by rebuilding export manufacturing. Britain must become “competitive.” Perhaps unfair to attribute to Cable, but wonks generally translate competitive as meaning lower "per unit costs" (IE, worker wages).
But in the euphoria of happy headlines few picked up Cable's warning or their implications
The announcement boosted the Prime Minister’s poll ratings, in particular with regards to his economic "competency." His Party clawed back as much as 3 points from the pre-announcement 14% Labour lead. It might be overegging to attribute all to the announcement. But a simultaneous increase in poll ratings suggests an announcement-induced bounce. It must have been welcome relief to a Prime Minister besieged by back bench rebellions, conflict within his Coalition and weeks of dismal headlines.
What fortuitous timing! The news came exactly as the Prime Minster began yet another “restart” to his administration. Remarkable.
Fortuitous but not actual
The 1% is not an “in the books” actual. It is an “advance estimate.” Over the decades such advance estimates rarely prove out in the final.
Even assuming it were to do so this time, it is hardly evidence for "healing" or that the government is “on the right track.” Authorities counted all income from Olympic ticket sales regardless of when actually purchased. It is growth over the prior quarter, not the year. The prior quarter final was an actual contraction, caused in part by the Diamond Jubilee. BNS estimates the Jubilee contraction accounts for as much as 0.5% of the 3rd quarter increase. Taken together, that which is attributable to the basic economy is 0.2-0.3%.
By contrast, US growth for the year ending the third quarter was 2%, up from 1.3% as of the second quarter.
Moreover, UK exports almost surely benefited from the Bank of England’s programme of Quantitative Easing (QE), a possibility ignored in the rush of happy headlines. This programme ended with the 3rd Quarter.
As long as QE was in place it reduced the relative value of the pound. The value shot up again shortly after QE stopped.
QE made British goods cheaper to buy.
In future quarters the UK economy will not be influenced by the Jubilee or the Olympics and QE stimuli.
Analysts have also failed to take into account any impact on GDP from inflationary increases to the price for goods sold. BNS doesn't reduce growth figures to a constant pound from which to assess real performance.
Safe -- for the moment -- from actuals
The Chancellor will not have to face any of this until after his 5 December “Autumn Statement.” He will be free to claim an estimate evidence the economy “is healing” and his government “on the right track.”
For the moment some appear "blinded by the light," the proverbial “line drawn under” their indignation at Andrew Mitchell, et al. Some once again see the Tory Party, however "nasty," as “competent” with the economy.
When Mitchell’s “Pleb” comment dominated the headlines, Labour’s lead rose to 14%. Certainly this lead wasn’t entirely attributable to Mitchell. But his comment contributed. So did another Tory's comment that the homeless are what he steps over on his way out of the Opera. Comments like these reminded the guy in the street what Tory elite really think.
At the same time, the Coalition acquired a reputation for economic incompetence. Faith in them had been shaken by a series of bad headlines.
In th context of bad economic news, nasty became intolerable.
It appears for the moment happy headlines may have restored some luster. Faith bolstered, once again some will put up with the attitude. It is, after all, "the economy stupid," isn't it.
How like Antaeus the British sometimes seem
In Greek and Berber myth Antaeus was the son of Poseidon and Gaia, Mother Earth. Antaeus loved to wrestle. He was indefatigably strong -- as long as he remained in contact with the ground.
Heracles challenged Antaeus.
Heracles realized Antaeus' secret. Heracles knew he could not defeat Antaeus as long as Antaeus was "grounded." So Heracles held Antaeus aloft until his strength ebbed. Heracles then crushed Antaeus in the cruel embrace of a bear hug.
The little people seem at their united strongest when the elite puts them down. When the elite "raise them aloft" with "aspirational" and “upward mobility” the little people sometimes forget the elite’s genuine view of them and their real prospects under elite rule. They lose contact with the ground.
The 1% estimate presents an illusion. The economy isn’t healing. Healing would be challenging under any set of policies. But even should the economy grow, it is clear that the British public will not be the beneficiaries. Recall Secretary’s Cable comments on “rebalancing the economy” through “competitiveness.”
The British need to regain their "ground." Only then they will be strong enough to deal with the economy -- and those who pursue personal wealth to the detriment of Britain's prosperity.