In his budget speech, the Chancellor said that he wanted Britain to have more economic resilience. The economic recovery that his polices are delivering is unlikely to achieve this aim.
The good news that accompanied the Budget is that the Office for Budget Responsibility's (OBR) forecasts released alongside the budget show that it has revised up its growth forecasts again. It now expects real GDP to increase by 2.7% in 2014, followed by 2.3% in 2015.
There is also some good news about the composition of this growth. Business investment is forecast to increase by 8.0% this year and by 9.2% next. Although the OBR has been consistently too optimistic about investment spending in the past, recent data and the evidence from business surveys suggest it might be right this time, at least as far as 2014 is concerned. But, business investment at the end of 2013 was 20% lower than its pre-recession level in the first quarter of 2008. There is a long way to go before our investment spending levels (in relation to GDP) match those in our competitors.
The OBR is less optimistic about the prospect of external trade (exports less imports) supporting UK growth in the next few years. In fact, its forecast suggests that trade will subtract 0.2% in total from the growth of the economy between 2013 and 2018.
This will be a disappointment for the Chancellor, who said in his March 2012 budget: 'We want to double our nation's exports to one trillion pounds this decade'. In the two years since then, exports have only increased by 2.2% in total. They will have to increase at an annual rate of more than 10% over the next seven years if they are to reach £1trillion in 2020. The big increase in export credit announced by the Chancellor in the budget will help, but it is unlikely to be enough to produce the massive improvement in exports that is needed.
But the most worrying aspect of the economic recovery, as forecast by the OBR, is what happens to household debt. The Chancellor presented the budget as one for savers, but his economic recovery is heavily reliant on borrowers.
Over the last six years the ratio of debt to household income has fallen steadily (largely as a result of higher incomes rather than any reduction in the nominal value of debt). But the OBR believes that this fall has come to an end. Over the next five years it expects the debt ratio to increase from 142% to 166%. This is worrying because a build up of household debt before 2008 was one of the reasons that the recession was so severe in 2008 and 2009.
In the OBR's economic forecast, the recovery is only sustainable if households take on higher debt, because real wage growth is expected to be anaemic. While average earnings are expected to start increasing faster than prices later this year (after almost five years when the opposite was the case), the OBR forecasts earning growth will average 3.4% from 2014 to 2018 compared to inflation of 2.0%.
A large budget deficit is not the UK economy's only problem. It has a number of structural weaknesses, in particular high household debt, a persistently low level of investment relative to our competitors and a long-standing weak export performance. A resilient recovery would be one that saw these weaknesses being tackled.
Unfortunately, the recovery that we appear to be getting does very little in this respect. The outlook for business investment has improved markedly in the last year, but the same is not true for exports. There is very little chance of the Chancellor's £1 trillion target for exports in 2020 being met. Meanwhile, rather than becoming a nation of savers, UK households are expected to take on more debt. The UK economy is still a long way from the resilience that the Chancellor spoke of.
Tony Dolphin is Chief Economist at IPPR