17/11/2013 17:43 GMT | Updated 23/01/2014 18:58 GMT

Growth Is Back but the UK's Weaknesses Remain

Mark Carney's pronouncement on the economy on Wednesday was a mixed blessing, but not for the reasons advertised in most of the media. "The recovery has finally taken hold," the Bank of England Governor said as he unveiled upwardly revised growth forecasts for the UK. The relief that might be expected to follow has been tempered by the knowledge that as growth returns, and unemployment falls, interest rates are going to go back up. Inevitably, the prospect of a rate rise is agitating a lot of headline writers.

But this is not why the recent slew of good news on GDP, culminating in Mr Carney's "glass half full" moment on Wednesday, should give pause for thought. The bigger question is how this growth is being rekindled - and how long it can last. The economy has been shored up in recent years by an unprecedented loosening of monetary policy. That in turn has been reinforced by measures to bolster the housing market. More consumption, more spending, more debt and - that pre-2008 favourite - rising house prices. This may result outwardly in the feelgood factor George Osborne wants to take into the next general election, but he knows as well as anybody that none of this has addressed the structural weaknesses that are undermining Britain's long-term prosperity.

There was a time, just a few years ago, when ministers spoke with apparent enthusiasm about rebalancing the economy. Ending the reliance on London and the financial services industry, rejuvenating manufacturing, enabling Britain to pay its way in the world once again. The Chancellor himself, in a line that is increasingly being played back to him now, said he wanted an economy held aloft by "the march of the makers". It has come to little.

It is against this backdrop that Patrick Diamond, a former Downing Street adviser to Tony Blair who also worked on the 2010 Labour manifesto, warns of the danger of reverting to "business as usual". In a new Civitas book, Transforming the Market: Towards a new political economy, he calls for a national economic strategy incorporating, but going much further than, a traditional industrial strategy. There are many aspects to this, as such an approach needs to cover skills and vocational training, finance for small firms, regional planning and corporate governance reform. It needs targeted support for industry. One suggestion that received a lot of attention this week was the idea that major cultural attractions like the Royal Opera House and the British Museum could be spread around Northern cities. That is just one illustration of the kind of thinking that is required to ensure the nation's assets are distributed more evenly across the regions. Regional banking, already in favour with the Labour Party, is another approach.

The finer details may provoke debate, but what is essential is a sense of urgency on the part of Westminster politicians and strong cross-party agreement about the long-term direction of travel. As Duncan Weldon of the TUC notes, this is the work of more than one parliament. It therefore needs the kind of collaboration across the political divide which is usually incompatible with the electoral cycle. This tends to happen only in times of national emergency. The biggest risk posed by the recent return to economic growth is the mistaken belief that Britain's economic crisis is over.