In his March 2011 Budget, George Osborne promised a 'march of the makers': an economic recovery led by manufacturing industry boosting exports and investment spending. But companies have been reluctant to oblige, and as we look forward to 2014, a recovery built on this solid foundation seems increasingly unlikely.
Investment spending, which the OBR in its June 2010 forecast said would increase by 22% between 2010 and 2013 is likely to have fallen by 4% over this period. It is still 24% below where it was at the end of 2007. Far from marching forth and leading the economic recovery, the makers have been in retreat.
The Chancellor also risks pumping up a fresh housing bubble with the Help to Buy scheme. House prices are now increasing faster than at any time since July 2010. Across the UK as a whole, they rose by 6.5% over the last year, and in London growth reached double digits. Even with Help to Buy, for many young people finding a set of house keys under the Christmas tree is a far off dream, as concerns about large deposits are replaced with ones about unaffordable monthly repayments and unprecedented levels of debt.
A massive build up in household debt before 2008 contributed to the depth of the recession in the UK. Now, the OBR expects debt to start increasing again, not just in nominal terms, but also in relation to incomes. Although it is not expected to return to its previous peak within the next five years, by 2018 the debt ratio will be back up to 160 per cent.
There is also cause for concern when we look to the UK's performance on the world stage. In the global economy we are truly living beyond our means, and have been doing so for three decades. The UK's trade performance has been hindered in recent years by developments in the euro-zone, but poor numbers are nothing new: 2013 will be the 30th straight year in which the UK has recorded a deficit on its current account balance. This is a sign that there is a fundamental flaw in the UK's economic model.
A relatively low rate of investment is another key structural weakness of the UK, and it is a reflection of the persistent short-termism of business in the UK. The dominance of finance capitalists has led senior managements to focus ever more on quarterly results and on the need to stave off a potential acquisition or merger. For the economy as a whole, this is disastrous. A low rate of investment means a less productive economy, lower living standards and a lack of competitiveness.
Strong growth in the short-term does not mean that structural weaknesses in the UK economy that became more evident during the 'Great Recession' have been eliminated. Unless we move to adopt a new economic model, the recovery will prove unsustainable and bittersweet for those who do not benefit from it before it is extinguished.