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Services are rising but still damp Services are rising but still damp
(3 months later)
A survey of the services sector has shown the strongest rise in activity for six years, meaning that the brigade of economists who argue we can all go to the beach this summer safe in the knowledge the economy is back in shape will doubtless bang their drum again.A survey of the services sector has shown the strongest rise in activity for six years, meaning that the brigade of economists who argue we can all go to the beach this summer safe in the knowledge the economy is back in shape will doubtless bang their drum again.
Yet the Markit/CIPS index of the services sector in June is only back to its March 2011 level, so the coalition government has yet to drag the sector back to the position it inherited from Labour. Worse, figures from the Office for National Statistics show that output in the sector remains below its 2008 peak.Yet the Markit/CIPS index of the services sector in June is only back to its March 2011 level, so the coalition government has yet to drag the sector back to the position it inherited from Labour. Worse, figures from the Office for National Statistics show that output in the sector remains below its 2008 peak.
Then there are the manufacturing and construction sectors to consider. Again, there is euphoria after a couple of months of recovery. Yet both remain well below their peak. Construction activity in the first quarter of this year was 6.5% below the same quarter a year ago, and is 38% below its peak, in 2008.Then there are the manufacturing and construction sectors to consider. Again, there is euphoria after a couple of months of recovery. Yet both remain well below their peak. Construction activity in the first quarter of this year was 6.5% below the same quarter a year ago, and is 38% below its peak, in 2008.
Without a doubt, the falls in output last year and in the spring were exaggerated by Brussels' inept handling of the euro crisis, the bad weather and George Osborne's bizarre insistence on kicking the economy when it was down, with threats of deeper spending cuts.Without a doubt, the falls in output last year and in the spring were exaggerated by Brussels' inept handling of the euro crisis, the bad weather and George Osborne's bizarre insistence on kicking the economy when it was down, with threats of deeper spending cuts.
Likewise, much of the rise in the last two months is merely a bounce-back from those artificially deep dips. There was always a good deal of truth in the coalition claim that the UK economy never suffered a double dip recession, let alone a triple dip, in the sense that the dips pointed to a slump akin to 2008's; but this also means the rise we see now cannot justifiably be trumpeted as a sustained recovery.Likewise, much of the rise in the last two months is merely a bounce-back from those artificially deep dips. There was always a good deal of truth in the coalition claim that the UK economy never suffered a double dip recession, let alone a triple dip, in the sense that the dips pointed to a slump akin to 2008's; but this also means the rise we see now cannot justifiably be trumpeted as a sustained recovery.
Looking around the global economy, there are too many bear traps waiting for unwitting policymakers to step in for anyone to take comfort from a few months of data.Looking around the global economy, there are too many bear traps waiting for unwitting policymakers to step in for anyone to take comfort from a few months of data.
Witness the recent 800-point fall in the FTSE that followed Federal Reserve chief Ben Bernanke's statement of the bleedin' obvious: that he will need to take his foot off the stimulus accelerator at some point.Witness the recent 800-point fall in the FTSE that followed Federal Reserve chief Ben Bernanke's statement of the bleedin' obvious: that he will need to take his foot off the stimulus accelerator at some point.
Thankfully, policymakers in the Bank of England repeated this week that they think the recovery and higher interest rates are a long way off. They expect the recovery to continue along its bumpy path and for interest rates to stay low for probably a couple of years yet.Thankfully, policymakers in the Bank of England repeated this week that they think the recovery and higher interest rates are a long way off. They expect the recovery to continue along its bumpy path and for interest rates to stay low for probably a couple of years yet.
The new Bank chief, Mark Carney, is expected to make this message more explicit in the coming months. It is a message not without risks, because big investors will probably use the cheap money on offer and gamble it on the kind of flaky products that created huge asset bubbles and brought about the banking crash. But there are ways to control asset prices other than raising interest rates.The new Bank chief, Mark Carney, is expected to make this message more explicit in the coming months. It is a message not without risks, because big investors will probably use the cheap money on offer and gamble it on the kind of flaky products that created huge asset bubbles and brought about the banking crash. But there are ways to control asset prices other than raising interest rates.
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