The latest news for trade and manufacturing speaks volumes about the state of the UK economy: weak, unbalanced and highly dependent on continued low interest rates to keep it going.
This is not the way it was supposed to be. When George Osborne became chancellor six years ago he pledged a new growth model – one based on exports and humming factory output rather than debt-financed consumer spending.
The picture in the spring of 2016 is the opposite of what Osborne promised.
Manufacturing production in February fell by 1.1% on the month and was 1.8% lower than in the same month in 2015. It is below its previous peak reached in the first three months of 2008. Steel production was at its lowest level in seven years – and that was before Tata announced it was selling its UK concerns.
Trade is another horror story. Don’t be fooled by the small fall in the monthly deficit between January and February. This only occurred because the January deficit was revised up to £5.2bn from a previously reported £3.5bn.
The quarterly data provides a better guide to the underlying trend. The deficit in goods and services in the three months to February stood at £13.7bn, up £3.8bn on the previous quarter and the highest since the first three months of 2008, when the economy was about to plunge into recession.
For the time being, another period of falling output looks unlikely. The economy is clearly losing momentum but is being spared an outright recession because consumer demand is relatively robust. But that’s only because interest rates have been pegged at 0.5% for the past seven years, making borrowing cheap.
So, here’s the picture. Manufacturing is in a desperately poor state. Consumer demand is robust and cannot be met domestically. The trade deficit is widening. History suggests that this does not end well.
This article was written by Larry Elliott Economics editor, for theguardian.com on Friday 8th April 2016 11.46 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010