“when American sneezes, the rest of the world catches a cold”. A US recession, if it does indeed happen, would not necessarily mean that we will get one here, but it would certainly damp down expectations for the back end of this year.My feeling has long been that we shall probably avoid recession, and the mainstream forecasters, including the International Monetary Fund, have now revised their projections.
There is something in that. Nothing wrong with simple explanations; they are usually better than clever ones. But I worry that there is something else going on, which is a wider loss of faith both in the UK economy and the ability of this government – and crucially also of the Labour alternative – to lift economic performance. Looking closer, however, that performance is not too bad.
. But to simplify a complex bit of economic analysis, it found that the problem was not so much a general weakness, but rather the result of two areas of falling productivity.by 9.5 per cent. True, it was very hard to measure the output of public services, and true, this was a very difficult period for the Government. But it is at least plausible that the public sector is dragging the economy down. The other sector is retailing and wholesaling, where productivity was down by 1.5 per cent.
If this is right, it is good news. This can be fixed, indeed is being fixed in retailing, and could be fixed in the public sector. What the study does not do is look at comparable economies elsewhere, and before leaping to conclusions I would like to see some data from France , Germany and the US. But my point is simply that it may be possible to improve UK performance in the coming years to a greater extent than most people expect.