Is this as good as it gets?
Yesterday’s Index of Manufacturing figures showed that manufacturing production was 4.9% higher in July than 12 months previously. This has been very positively received, with most reports noting that this is the strongest annual rise since December 1994.
But it’s worth looking at the index figure itself. The index compares the seasonally-adjusted level of production with 100 being the figure for 2006. The July 2010 figure is 90.8, which is certainly up from the low point of 86.0 last August, but its well below the figures of over 100 just before the recession. If you exclude the recession, the last time the index was this low was in the recession of the early 1990s, and the last time before that was late 1988 – it’s as if we’ve lost more than 20 years of growth.
The Bank of England’s agents reported last month that business confidence has “ebbed”, that investment plans are “focused on asset replacement and maintenance” and that spare capacity has been eliminated only in “pockets” of manufacturing – for the most part businesses expect to be able to meet future demand from existing resources.
So this may be as good as it gets. The odds that private sector growth will take up the slack as the public sector contribution to growth is removed are getting longer by the day.
To complete this depressing review, the National Institute for Economic and Social Research(*) has just reported that GDP growth has softened, with GDP growth of 0.7 per cent in the three months to August after a rise of 1.3 per cent in the three months to July. Although this is still a respectable rate, the NIESR forecasts that
the rate of growth will continue to decelerate over the coming months.
We do not expect output to pass its peak in early 2008 until 2012.
It’s being so cheerful as keeps me going.
(*) Mea culpa – an earlier version of this posting quoted the wrong NIESR document: apologies to anyone who was misled.