The economic drumbeats have been getting louder over the past few days. A flurry of upbeat data would suggest the global economy is back on its feet and fighting fit.
The good news culminated in Friday’s revelation that China had expanded at its quickest pace this year during the summer months, clocking up a stonking annualised rate of 7.8 per cent. With the world’s number two economy now focused on boosting its domestic demand as exports cool, there is a huge window of opportunity open to UK businesses to push their wares eastwards.
Britain’s economy, as we are acutely aware, is hardly firing on all cylinders. But figures out this week are expected to show the modest expansion seen in the first six months of the year continued into the third quarter. Estimates hover around the 0.8 per cent mark for the period, pointing to an annual growth rate of about 1.6 per cent – solid, but unspectacular by pre-crisis standards.
North of the Border there have been encouraging signals. The Scottish Chambers of Commerce’s latest quarterly report found signs of growth across all sectors. Official data also highlights a five-year peak for employment levels in Scotland.
But there is a yin to all this yang. And it rests squarely at the feet of the consumer.
September’s sales monitor from the Scottish Retail Consortium – published last week – was a wake-up call for the economic optimists and suggests shoppers may be tightening their belts ahead of the crucial festive season.
Growth was meagre compared with July and August – hardly bumper months anyway – and well shy of the rate of inflation. Almost without exception, a trip along the average high street will present a depressing picture of shuttered premises, closing-sale signs and neglect.
There are some winners, of course. Pound stores are pulling in penny-pinching punters, budget clothing chains such as Primark and H&M are selling clobber by the basketful and, within the wider leisure trade, mid-price restaurants – think Frankie & Benny’s, Nando’s and Pizza Express – are proving a draw as people indulge in the odd “affordable” treat.
Bigger-ticket items are moving, with the motor industry on track for its best year since the downturn, but the splurge is being fuelled by not-so-cheap credit, raising concerns about another debt bubble.
Sustained consumer spending is critical to the well-being of the economy. Yet, with inflation continuing to outstrip wages, household bills soaring and the need to pay down debt it’s hard to see the recovery being anything other than fragile for the foreseeable future.
View clearer on future of RBS
THE vexed question of what to do with Royal Bank of Scotland looks close to being answered.
George Osborne has stated that the future of the bailed-out bank is his number one priority “for the next two or three weeks”. Talk is of the Chancellor ordering a break-up of the bank into so-called “good” and “bad” components, though he may still opt for a less radical restructuring.
His decision follows the appointment, in June, of investment bank Rothschild to examine the options for RBS and its tens of billions of soured assets. Its report is imminent.
Staff have already been braced for a possible break-up. In a message e-mailed directly to some 400 senior staff and posted on the bank’s intranet for its 120,000 or so employees, new boss Ross McEwan has urged workers not to be distracted and instead focus on serving their customers’ needs.
The business-as-usual message may provide some reassurances for those on the front line.
Those advocating a full break-up, including former Bank of England governor Lord King and ex-Chancellor Lord Lawson, say a split would leave the bank better placed to lend and support the British economy.
But, should he choose to go down the radical route, Osborne will face a challenge persuading RBS’s minority shareholders to back such a plan. Investors have been banking on any break-up generating minimal upheaval.
Much has already been done to clean up RBS and credit must go to McEwan’s predecessor, Stephen Hester, and his management team.
More pain may well be necessary but the government must act decisively and not simply kick the can further down the road. Taxpayers, staff and those still holding RBS shares require resolution, however belatedly.