Relying on consumers for restored economic growth is madness

Moderate improvements in economic activity, upwardly revised growth forecasts for the rest of 2013 and now, Bank of England figures showing increased lending to small businesses in June are to be welcomed.

Certainly coupled with a few sporting triumphs and some hot, sunny days this has all been seen as good news by politicians and some media commentators.

But look a little more closely and actually many of the figures given are still well below pre-2008 levels. In the case of SME borrowing records only began in 2011 and lending has been falling since 2009. SME borrowing may have risen a little in June but compared with a year earlier according to the BoE it is still declining, by 3.3% on the same period last year. One monthly swallow does not make a summer.

Sensible businesses are still watching their cash flow, consumer debt may be falling but is still believed to be unsustainably high, yet everyone seems to be jumping on the optimism bandwagon. Most recently the EU’s Gfk/NOP indicator is suggesting that consumer sentiment will continue to pick up.

Haven’t we been here before?  As the Telegraph’s City AM editor Allister Heath pointed out a week or so back, lessons have not been learned if everyone is relying on credit-fuelled consumer-led growth via increased activity in the housing market and rising house prices, fuelled by the Help to Buy scheme.

Isn’t it also true that our economic difficulties are where they are precisely because of a house price bubble and too much credit pre-2008? Plainly there are still lessons not yet learned.

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