UK shows its resilience, says ALEX BRUMMER

Zero growth or a flattening economy doesn’t look good, especially when you consider that UK manufacturing is still hovering below pre-pandemic levels.

But if one considers recent rhetoric about Britain, including the Bank of England’s (since revised) November forecast of the longest recession in history and the IMF forecast of the worst performance of the G7 economies in 2023, should be considered a mild triumph last year.

The weak last quarter (production fell by 0.5 percent in December) means that Britain will have grown by 4 percent in 2022.

As much as I despise the Premier League’s approach to reporting economic data, according to the IMF it made the UK the fastest growing country. This follows an increase of 7.6 percent in 2021 based on IMF figures.

There is a tendency in Britain to look at things on the dark side. Those of us who try to see the positive in life sciences, R&D, the city, creative industries and elsewhere are seen as hopeless Pollyannas.

Think how battered the country has been over the past year. We’ve had three prime ministers and the alarming collapse of markets during the Liz Truss interlude. Like much of the world, the UK has been absorbing unprecedented increases in fuel prices with a devastating impact on the cost of living. As the year progressed, unions sensed the government’s fragility and launched a relentless series of strikes that put life and limb at risk and disrupted education in schools and universities.

And a series of ineffective Tory governments have failed to come to grips with the aftermath of Brexit, ranging from mundane customs bureaucracy to replacing EU Horizon Europe science funding at the country’s top universities.

Broadcast reports on economics and business do the UK no good. For those listeners who got up early on Friday when the latest GDP production figures were due to be released, it was possible to hear voices almost watering at the possibility of Britain slipping into recession.

When the headlines were scrutinized, a report (in this paper) based on the words of AstraZeneca chief Pascal Soriot, who made a good point about the UK’s uncompetitive corporate tax system, was read with dripping skepticism.

The way government finances (including taxes!) are handled on the BBC is a good example of this. The recently published report by Michael Blastland and Andrew Dilnot argued that too much of the leadership of economic journalism came from the Westminster bubble. Too few reporters had any idea how the figures are calculated.

First, it is often forgotten that the number of loans is the difference between two very large numbers: how much the government spends and how much is collected in taxes. They tend to be very lumpy and seasonal (for example, tax collections are strong in January due to self-assessment deadlines).

Second, while interest costs on loans are reported monthly, they are by no means evenly distributed and can vary widely in the case of inflation-linked bonds. Third, what no one ever wants to acknowledge is that despite the fearful markets in September 2022, the UK has the second lowest debt ratio in the G7 after Germany. That’s a ranking I can support.

It is critical that we are not fixated on forecasts. Nick Macpherson, former Permanent Secretary of the Treasury, wrote in the FT this month suggesting that Britain is in danger of regaining its status as ‘the sick man of Europe’. He added that the IMF’s recent growth forecast is not totemic and that in a “world of small numbers,” no country will be satisfied with a weak performance.

That brings us back to the growth figures of the last quarter.

Services, the largest segment of the UK economy, fell in December. The drop was caused by the closure of the Premier League (due to the World Cup) and health paralysis due to strikes.

Certainly, in London (and it shows in the data) there has been a perceptible buzz since the turn of the year.

We should remain skeptical about projections of a poor Q1 outlook. The cost of living is a major roadblock, but the optimism that inflation is beginning to fall is positive. In addition, the peak in mortgage rates could be over, which could boost the housing market.

Tax benefits would be welcome. But there is no reason to despair.