Is the UK’s slow growth the fault of the Eurozone?
Is the crisis in the Eurozone responsible for the UK’s dismal economic growth? The latest government apologist to repeat this line was Mark Hogan, the Financial Secretary to the Treasury, arguing on the Today programme that the situation on the other side of the Channel “does cast a long shadow over our economy”.
This argument doesn’t stand up to scrutiny. One problem for the Government is that our stagnation began before the Eurozone crisis. Take two sets of data published today. First of all, look at the industrial production data, published by Eurostat:
The chart shows the onset of the Eurozone’s troubles, with production dropping badly in September, but UK production has been stagnant since two months before that. Production in the Eurozone in September was still higher than at the end of 2010, despite the current difficulties; the UK still lags behind that level.
My second piece of new evidence is the OECD’s Composite Leading Indicators, a monthly round-up of data that suggests which way major economies are headed. Everywhere is slowing down, but if you look at the OECD’s charts for the Eurozone and the UK, you’ll see that our peak can claim to have been earlier, and by several months:
We need to get an important point right in this debate. I deny that the Eurozone’s problems are cause of the UK’s current troubles; but that is not the same as saying that they aren’t going to have an effect. Obviously, they are going to limit the scope for export-led recovery and there may well an impact on investors’ confidence in the UK and the solvency of British banks. This is a different matter from our sorry growth record over the past twelve months – and blurring this distinction makes rational arguments more unlikely.
The obvious relief with which Ministers do this tells us a lot about their confidence in the official line.