Fortnightly insight into the current state of the economy and how it relates to Dorset
by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.
See: www.strategiceconomics.co.uk
Is the Dorset economy ready to run the marathon of recovery? The signs are better but worries remain.
The first estimate of UK real GDP for the third quarter (July-September 2013) showed output up 0.8% on the quarter and 1.5% higher year-no-year. Whilst the latter rate is still well below our economic potential, the former rate shows that the recovery that seemed to get underway in the April-June period persisted through the summer.
Importantly, the latest increase in aggregate output seemed reasonably broadly based across different sectors of production and services. Also, the statistical story of recovery seems supported by the latest surveys of business confidence and aspiration. Modest rises in orders, output and employment are evident here in Dorset and elsewhere.
But, output is still 2.5% below its pre-recession peak, inflation is still above the 2% MPC target, and unemployment remains above the Bank of England’s ‘new’ 7% threshold. In other words, the downturn persists. At long last, after five and a half difficult years, we are moving forward but we are not fully adjusted for the race ahead.
As we set off on what is likely to be a marathon recovery rather than a sprint, the local economy is still carrying too much weight, lacking in fitness and short of stamina. This means the race will be tough – growth will be constrained and difficult to sustain.
In economics terms, our excess weight is the level of debt being carried by the public and households. The austerity diet is not over yet. The fitness problem is that our productivity is low relative to what it used to be and compared with many other runners. We need to build this up quickly if growth is really going to lead to more and better jobs. Moreover, without more and better jobs, our stamina, in terms of household real incomes and business real investment, will continue to fall.
So, the question ‘is Dorset’s economy ready to run the marathon of recovery?’ has to be answered with some caution. The recession is over but the downturn persists. We have started to move back to the starting line but there are concerns about our preparedness to run. In the coming periods, we will see if we can get into better shape for a competitive economic race.
Professor Nigel Jump, 28th October 2013
