Government's recovery plan is dangerous and needs changed
While we are seeing positive signs for the economy, Paul Mac Flynn, a Nevin Economic Research Institute researcher, believes all is not as good as the politicians are telling us
The cosy consensus emerging about the UK is that the economy is in recovery and is set to take off at the speed of a gazelle. While official indicators are showing positive signs, it is necessary to take a closer look at what is really happening. Instead of building a new model of economic recovery, we have decided to re-inflate the old one.
The causes of the financial crash of 2008 are many and complex, but its effects were felt acutely across the UK and here in Northern Ireland. The UK economy became overly dependent on the financial sector.
This fuelled irrational market behaviour including a housing bubble which wreaked so much havoc in Northern Ireland. In the years building up to the crisis we saw an explosion of personal debt which fuelled our economy until the credit lines were cut off.
The after effects of this disastrous economic model are still with us today in spite of recent developments. At the time of the crisis we were told, by no less than David Cameron and George Osborne, that the UK economy needed fundamental reform and we needed an investment-led export recovery.
We couldn't just make believe growth with cheap credit any more, we had to work for it.
It is for this reason that one can become very downcast about the recent UK "recovery".
There is no doubt the economic indicators have turned and the UK economy is moving upward again. In a sense it was always going to recover, it was a matter of how and when.
Austerity imposed by the coalition government choked off the nascent recovery of 2010. The economy stagnated for nearly three years and now appears to be lifting. However not all recoveries are good recoveries.
Instead of building the recovery on the basis of this new economic model we have built it on a gruesome reincarnation of the previous one.
Business investment across the UK is on the floor. According to the latest set of National Statistics it decreased by 2.7% in the last quarter.
The Current Account deficit in 2012, which measures trade balance for the UK, was nearly three times what it was in 2011. The 2013 trade figures do not look promising either. So where is this recovery coming from you might ask?
It's coming from the same old reliables. The household savings rate has plummeted, leading to an increase in household consumption. This means that instead of paying off debts, people are most likely running down savings or borrowing again.
Due to the continuing strain on banks new money lenders like pay day loans companies have sprouted up to fill the gap.
We've also seen house prices rise from the ashes, in particular in the south east of England and London, where the party never really stopped. House price increases are not necessarily a bad sign, especially in the aftermath of a crash.
However house prices are not rising because people's incomes have recovered or because they feel secure to borrow again.
They have been driven in the most part by lack of supply in key markets.
Rather than recognise this, the UK government has sought to reprise the role of reckless banks and guarantee mortgages for people who cannot afford them through its Help To Buy scheme.
This recovery is dangerous. It is not the new responsible model of growth we were promised, but a hideous reproduction of the last one. Northern Ireland cannot afford another housing bubble or an explosion in private debt. Instead our leaders should remake our economy based on investment in education, skills and infrastructure. We can do better than this.