On a thin news day, but one likely to be centred around sterIing after today`s bumper PMI numbers, I would just like to make the comparison between the economic state of the UK – as perceived from the outside – and just how different that perception is internally.
To the outsider, who reads the economic statistics, the UK is a recent success story. Growth is on the up; we have a workable level of inflation; sterling has been stable; unemployment is manageable; confidence amongst business leaders is improving; interest rates are set to be low for the foreseeable future; central government and central bank appear to be singing off the same hymn sheet, and house prices are rising.
Yet if you read UK newspapers, or more importantly talk to the people, a different picture emerges. Growth is centred on the south of the country, and a rising GDP has played no part in improving most people`s lives; the official inflation figures are a joke, real inflation is running at 10% +; the fact that sterling has been behaving itself is irrelevant to most people (until it doesn`t!); interest rates being low have moved more of the population into a situation where they are now afraid of interest rates going higher, as they will not be able to finance their debt; the coalition government is mildly unpopular ; the cost of living and immigration are going to be big issues to overcome in 18 months time and house price rises are again predominately only in the south.
So external and internal perceptions are markedly different- does it matter? It does matter in as much as GDP is becoming increasingly divorced from being a strong indicator of the well being and happiness of the population, and therefore is an unreliable indicator of political success at the ballot box. A long hours and high personal debt culture have squeezed out opportunities for individuals and families to make the choices they might otherwise wish to.
UK plc however sails nicely on, and as long as the current government can convince people that their lives will improve (jam tomorrow!) then we might narrow the gap between perception and reality. I have raised the potential political threat to sterling before that is inherent in the comments above, and it is essential for a stable pound that this government can make people believe that the wealth effect of the economy can trickle down to them, and therefore get re-elected (preferably for sterling, probably with a Conservative absolute majority). Tough ask, but elections are won on hope, and a solid economic background at least gives government and population a basis for that.
