…amid fears of a double-dip recession
The fragility of Britain’s economic growth has been confirmed by various reports and comments from bankers and economists over the last week.
The Bank of England, on 11 August, slashed its growth forecast for this year and raised its estimate of inflation. Its governor, Mervyn King, desperately trying to be upbeat, spoke of a “choppy recovery” and several years of sluggish growth. He may yet turn to even more quantitative easing, to try to ‘recover’ the recovery.
The predictions of The Socialist (paper of the Socialist Party – CWI in England & Wales) are unfortunately being borne out; that we are entering a lengthy period of at best, little growth, high unemployment and workers’ living standards being held down.
House prices are again falling, leading more house owners into negative equity. Basic food prices are shooting up, while pay levels are growing by much less than inflation, making it increasingly difficult for people to get by.
Alongside this, the impact of the government’s cuts is only just beginning to be felt; there is a much worse impact to come. A third of bosses are expecting to cut jobs this autumn according to research by the Chartered Institute of Personnel and Development. This is across both the public and private sectors, with Local Authority bosses going the furthest – 63% of them are planning lay-offs.
The few glimmers of hope in recent reports on the economy come with gloomy caveats. There was an increase in the number of people in work in the quarter to the end of June but much of it was for part-time work only. The UK economy grew by 1.1% in the same quarter but much of that could be due to restocking of goods rather than indicating sustainable growth.
Cameron/Clegg government’s savage cuts will hinder economic growth
In fact the danger of a double dip recession continues to exist, with its possibility being increased by the savage cuts programme of the Tory/Liberal coalition government. The public spending cuts are starting to bite heavily into the private sector as well as the public sector, as many private companies depend on public sector contracts. This will hinder the prospects for economic growth, as will cutting people’s spending power through job losses, reduced working hours, tax rises and low pay.
Will the economy be rescued by exports, which ‘surged’ in the second quarter, helped by the reduced value of the pound? This pick-up is likely to be short-lived, not least because the largest taker of those exports was the US, which is again descending into economic troubles.
The US Federal Reserve ‘downgraded’ its outlook for the economy last week, saying that household spending is “constrained by high unemployment, modest income growth, lower housing wealth and tight credit”. This is after US president Obama’s $787 billion stimulus package in the economy has been virtually used up and the Federal Reserve has put in $1.2 trillion worth of quantitative easing, a programme now being continued in an attempt to sustain liquidity. Lowering interest rates further is not an option, as they are already near zero.
Fears in the US
For the US capitalists, a number of fears remain; of renewed recession, of deflation, of a run from the dollar by America’s foreign creditors – especially China – and of the spread of the US’s current problems around the world.
The eurozone had a 1% rise in GDP in the second quarter, equivalent to a substantial 4% on an annualised basis. The German economy was responsible for over half of that growth – it grew 2.2%, its best quarterly rate since Germany’s unification. However, the factors fuelling that growth seem unlikely to last, such as the relatively low level of the euro and a pick-up in markets for German goods internationally.
Also, a major crisis element for the eurozone is the big divergence between its countries. The economies of Italy, Spain and Portugal are barely growing at all and Greece is still in recession. The major cuts programmes in these countries will hinder or even prevent growth, as the cuts can do in Britain. Undoubtedly fears about sovereign debt defaults and the very survival of the eurozone are going to resurface.
So the millions of workers in Britain and beyond whose living standards are being crushed down by job losses and other cuts cannot look to a prospect of strong economic growth returning and creating millions of new jobs to come to their rescue.
Yet at the same time, the bankers are raking in huge profits again and many other large private sector companies are also reporting substantial gains. Much of this is driven by cost cutting rather than strong sales, but it indicates that the rich are still doing very well for themselves, while ordinary people suffer on all fronts.
Anger among working class people will only grow in this situation, with ever-increasing pressure directed at the trade union leaders to use the potential might of the trade union movement to challenge it.