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Bill Jamieson: Getting better but feeling worse

Scotlands unemployment rate, at 6.5 per cent, is lower than the UK average. Picture: Getty

Scotlands unemployment rate, at 6.5 per cent, is lower than the UK average. Picture: Getty

  • by Bill Jamieson
 

It’s hard to explain the paradox of getting better but still feeling worse off ponders Bill Jamieson

Paradox and contradiction engulf us in the latest swathe of data on our economic wellbeing. Are we getting better, or marking time?

Last week, we learnt that weekly wages are rising faster than inflation for the first time in almost six years, bringing to an end, statistically at any rate, the relentless erosion in real living standards. Yet few are feeling much benefit. Indeed, on some estimates, real wages are still down 10 per cent on 2008 levels.

How can we reconcile the grim resort to food banks with the evidence of upturn? The central charge is that we are still held in the grip of a “cost of living crisis” and yet, paradoxically, that the economy is only being lifted by an unsustainable uplift in consumer spending. Can both be true?

Anyone pondering those long queues at Edinburgh and Glasgow airports this weekend for Easter flights to warmer climes would wonder at the talk of a “cost of living crisis”. And for every story from the high streets of the onward march of discount retailers, upmarket chain Waitrose keeps powering on, with sales running 7.4 per cent higher than a year ago.

And lest you think this is just a south-east of England phenomenon with no resonance in Scotland, consider this: from a standing start in 2006, Waitrose is aiming to have 20 stores in Scotland by 2015.

How do we square this with those baleful accounts of life in “the “squeezed middle”?

Other evidence deepens this paradox. Latest figures show numbers in work in Scotland hit a record 2.57 million in the December-February quarter. Our unemployment rate is now down to 6.5 per cent, lower than the UK average, which is down to 6.9 per cent.

Yet fear of losing our jobs is still more potent than the upbeat prospect of being able to choose from a lengthening list of vacancies available.

Business survey data points to bulging order books and a strengthening upturn. But Scotland’s GDP rose by just 0.2 per cent in the final three months of 2013, compared with 0.7 per cent growth for the UK. Disruption to the Grangemouth petrochemicals had an impact there.

These conflicting signals can partly be explained as a clash between hindsight data and forward-looking indicators. But even here the explanation is not quite so neat. The view ahead is tempered by wariness that the era of historically low interest rates is set to end. A rise in the “emergency” official rate of 0.5 per cent that has persisted for five years looks likely within the next 12 months, pushing up the cost of borrowing for businesses, mortgages and personal debts.

Whether as an entrepreneur or struggling wage-earner it never does to be fixated on the rear-view mirror and the way things used to be. But it is the past – or recent past – where we find the explanation for the paradoxes around us.

Scotland’s economy, along with that of the UK, is still struggling to recover from one of the most severe financial crises of the past century.

The legacy was recession, a prolonged stagnation – and one of the slowest recoveries on record. Given this backcloth it has astonished economists that unemployment stayed as low as it did and that many firms chose to retain staff pending recovery.

However, that recovery was stymied by a collapse in bank lending and a marked reluctance among companies to borrow. Business investment has been slow to recover. And our productivity performance – the real key to genuine and sustained improvement in our wellbeing – is strikingly poor.

Thus, six years on from the banking bust we are still picking up the pieces and struggling to bear down on the legacy of billowing government deficit and debt. Public spending constraint is set to last long into the future.

A “cost of living crisis” is certainly still with those at the lower end of the income scale. This unevenness of upturn is due in part to the “solution” we so readily seized upon of “quantitative easing”. The policy of monetary loosening has worked to heighten inequality by boosting the wealth of those who already hold assets such as property and equity investments while doing little to boost lending to business and thus finance investment and expansion.

As for households, it has been a markedly more benign period for those in work. Even though incomes have not kept pace with inflation until now, ultra-low building society lending rates have slashed the monthly mortgage outgoings for millions of borrowers. This, combined with a modest recovery in house prices, has brought an improvement in household balance sheets. While Bank of England figures show UK household debt, including mortgage debt, has hit a record £1.43 trillion, the ratio of debt to household income has fallen, from 167 per cent at the start of the financial crisis, to 140 per cent now.

Thus paradox and contradiction is all around us: booming Poundland stores but buoyant sales at Waitrose; lower real incomes but an upturn in spending; an economy sensitive to setback but an indisputable improvement in business confidence. So what is the direction of travel? There are positive pointers. According to the latest survey from the Scottish Chamber of Commerce, Scotland’s economic performance has returned to pre-recession levels and confidence at manufacturing, construction and tourism firms continues to improve.

And two surveys due to be released tomorrow will show continued growth in permanent and temporary staff placements, while staff pay is rising strongly. The fly in the ointment? A shortage of recruits to fill the vacancies available – a good sign for wages. «

 

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