Is the UK economy really recovering? Over the last week, a wave of upbeat survey results has driven a tsunami of positive economic headlines. A mood is spreading that the country may now, finally, be emerging from the gloom of the sub-prime crisis. Manufacturers’ order books are showing their strongest overall growth rate in 18 years, according to the latest monthly survey by the Confederation of British Industry. Manufacturers’ expectations of future output have similarly climbed, says the CBI, well-above long-term trends.
The Society of Motor Manufacturers and Traders, too, has just reported that car production in October was 17pc higher than the same month in 2012, with domestic demand being driven by rising consumer confidence. Many families are certainly feeling more flush, given that house prices were up 7pc on October last year, the increase in part reflecting Help to Buy and Funding for Lending.
Improving sentiment has spread to the construction companies too, with house-builders beginning work on the highest number of residential properties since the financial crisis. New-home starts by commercial builders numbered 28,580 during the three months to the end of September, we learnt last week, a rise of 29pc on 2012 and the highest quarterly figure since early 2008. There’s also evidence of growth rippling across the economy. The Services PMI index surged to 62.5 in October, the UK’s dominant sector showing its fastest expansion, according to survey respondents at least, since 1997.
All this industry-generated data follows official figures that illustrate the economy is improving. The number of people claiming jobless benefits showed its biggest fall in over 16 years in September, with unemployment now standing at 7.7pc. And headline GDP itself grew by 0.7pc and then 0.8pc during the second and third quarters of this year, an above-trend annualized pace of no less than 3pc.
Little wonder, then, that many are now declaring that “Britain is booming” and a sustainable recovery has taken hold. I’d agree that this latest slew of positive data is unequivocally good news. Evidence of the downward trend in involuntary unemployment, an especially cruel form of human misery, is particularly encouraging.
I’m feeling more optimistic about the future of the British economy than I have in long time. That’s the result, along with the latest survey data, of a recent trip to the North East. I spent the backend of last week on Teesside and, I have to say, I was impressed by what I saw.
The North East of England, clearly, has its fair share of economic problems. The rate of unemployment, at 10.3pc, is the highest in the UK. Almost a fifth of children in the region live in households where nobody works, which brings some entrenched social problems. Everyone knows all this – not least because the economic woes of Middlesbrough, Sunderland and Newcastle are so often reported.
And yet, the reality is that this proud region plays a vital role in the UK’s commercial life – and, slowly but surely, the local business climate is looking up. The North East is closely involved with this country’s still globally significantly oil and gas industry, for instance. More than 70pc of the drilling platforms operating in the North Sea were built in the region and the sector continues to directly employ over 65,000 local workers.
The pharmaceutical sector is the UK’s second-biggest industry, commanding a huge 7pc global market share. And Wilton, on Teesside, is the home to our largest integrated chemicals plant, playing host to over 1400 companies from the UK and beyond. The North East’s chemical process cluster as a whole employs a quarter of the region’s workforce.
Then there’s the local automotive industry. No less than a third of all cars made in the UK are made in the North East, not least at Nissan’s flagship Sunderland plant, the source of a multitude of supply chain business for local manufacturers and service providers.
In 2012, the UK ran a near-record current account deficit of £59.8bn, equivalent to 3.8pc of GDP and up from £22.5bn the year before. Yet if it wasn’t for the manufacturing and pharmaceutical prowess of the North East, our trade shortfall would be even bigger. The region is unique in the UK over recent years, for having consistently produced a surplus of exports over imports.
One of the many inspiring conversations I had with local entrepreneurs during my trip was with Geoff Turnbull, whose Durham-based GT Group, an environmental engineering company, employs 350 people across the region.
Having began his career as an engineering apprentice at the age of 15, Turnbull has built a world-beating company, manufacturing everything from exhaust gas control system to specialized under-sea equipment. In 2011/12, GT turned over £26m, with exports to more than 50 countries accounting for almost 60pc of that total.
It was also good to hear about the role the North East is playing in the UK’s burgeoning renewable energy industry. Over the summer, we saw the completion of the 62 megawatt Teesside offshore wind farm – a 27 turbine development that’s already generating power to the national grid. The region is also well-placed to provide manufacturing and maintenance support for the Dogger Bank and the Moray Firth, two of this country’s biggest planned offshore farms.
While ship-building is unlikely to return to Teesside any time soon, local marine-technology and manufacturing expertise is being channeled into supply chain opportunities related not only to oil and gas, but also the creation of a world-class renewable energy sector.
I’m pleased the UK economic data is improving and it’s heartening to be reminded that, up and down the country, talented entrepreneurs are banging away, putting their money and reputations on the line and creating wealth and jobs. A new survey from the North East’s Entrepreneurs’ Forum suggests that 61pc of local business leaders are now feeling more confident in both their own firms and the economy than they were this time last year – which shows that, even in regions with particular difficulties, business sentiment is improving.
I can’t help but remain deeply concerned, though, about the shape of this nascent recovery – as well as its vulnerability, given the extent to which we’ve relied on virtually printed money and unsustainably low interest rates.
Personal debt in the UK just hit a record high of £1,400bn – or 90pc of annual GDP. Average household debt is now £54,000, more than twice what it was a decade ago. Outstanding “payday” loans are up from £900m in 2009 to £2,000m this year. And while the new-build “housing start” numbers look good, “housing completions” fell 8pc last month.
While government expenditure has continued to grow in recent years, and consumer spending is recovering, investment – the only true source of sustainable recovery – remains feeble.
Between April and June, total investment was 25pc below its 2007 peak. Its always easier to scrap important public sector investment than tackle more vociferous vested interests – and that’s what has happened. Private sector investment has meanwhile suffered on fears of another pasm on global financial markets and the related dearth of bank lending, not least to our small- and medium-sized firms.
During the year to mid-2013, investment was just 13.7pc of GDP, the lowest since the mid-1950s. Net of depreciation, UK investment was a paltry 2.4pc of GDP, down from 7.1pc in 2007. This is a disgrace – and remains the major obstacle to a genuine recovery. Chancellor Osborne should keep that in mind in the run up to next month’s Autumn Statement.