The UK seems to be experiencing a remarkable economic turnaround – but how is it comparing with the US and Europe?
In Newcastle-upon-Tyne, property prices are racing ahead. Over the last year it ranks as Britain's top performing city, with an 11% jump in the cost of buying a home.
London lags behind the capital of the north-east with a 5.2% increase, though it remains the most expensive region.
The forecast is that prices will soar over the next couple of years as the turnaround in Britain's economic fortunes begins to feed into the property market.
In the last month, the economy has stepped up a gear. Manufacturing and construction industries have fallen in step with the already resurgent service sector to push the UK well ahead of Germany, France and the rest of the eurozone in the growth stakes.
When the latest GDP figures appear next month, the UK could outstrip the US, which has propped up the world economy since the financial crash of 2008.
Economists are now asking whether George Osborne has found a magic formula. Such is the confidence in Britain's new-found vigour that some experts are questioning the Bank of England's low-interest policy, which Threadneedle Street said only last month should last until 2016, such is the underlying weakness of key sectors in the economy.
So is the UK recovery real? Is it just a short-term burst in property dealing before the longer-term realities of a slow decline reassert themselves? And how does the UK compare with other countries?
Employment/paySince the financial crash, workers across the developed world have been forced to price themselves back into work. Workers in Spain, Ireland, Germany and the UK have accepted the equivalent of zero-hour contracts that come with low pay and few benefits.
Britain's unemployment rate is now below 8% – although still above the 7% level being targeted by the Bank of England. As a result of immigration, there are almost 2m more people in the UK than in 2008, and many have found jobs.
However, this expansion in activity has not fed through into wage packets. The TUC has calculated that in the last five years average pay has fallen by 6.3% in real terms. A worker putting in 40 hours a week is £30.30 a week worse off, taking inflation into account, than in 2008.
Studies shows that four in every five jobs created since 2010 have been in low-pay sectors.
Wage rises in 2013 are averaging 2%, while inflation is running at 2.8%. A report on Monday by the Recruitment and Employment Confederation (REC) and KPMG shows the sharpest rise in salaries for full-time staff since 2008, but the REC also found that short-term appointments are at their highest since July 1998 – showing that employers are still seeking a flexible workforce.
A surge in the number of new jobs in the last 18 months has cut the US unemployment rate to 7.3%, its lowest for four years. But much of the fall is due to people leaving the job market altogether, mainly due to baby boomers retiring, younger people staying in college, and poorer workers claiming disability benefits. The US employment rate is 63.2% compared with 71.5% in the UK. In July a lacklustre 169,000 extra jobs were created, less than the 400,000 needed before the unemployment rate falls meaningfully.
In July, EU unemployment was at 11% , with the eurozone at 12.1% – both up half a percentage point on July 2012. That meant 26.6 million unemployed – roughly equal to the entire population of the Netherlands and Belgium combined.
The situation is much more concentrated among young people, with 5.5 million under-25-year-olds jobless.
Despite the crisis, salary levels have risen everywhere in the EU in recent years, with the notable exception of Britain and the bailed-out countries of Greece, Ireland and Portugal.
The EU's highest earners, the Danes, enjoyed gross average earnings of €60,000. Its poorest, the Bulgarians, get €4,668.
ExportsThe financial crash of 2008 brought with it an inbuilt spur for recovery – a low exchange rate. While the indebted countries of the eurozone were tied to an exchange rate dictated by Germany, the UK could cash in on a 25% decline in the value of sterling.
Exports of goods are up, but the rise has disappointed ministers, who believed manufacturers would grab a golden opportunity to win market share in fast-growing countries such as Brazil, China and Turkey. Manufacturers have increased their output in response to an increase in domestic demand and turned away from cultivating export orders.
Without the revenues from North Sea oil and gas production, which have proved insufficient to counter energy imports since 2004, the UK's industrial position looks weak.
The service sector, which includes the City, the advertising industry and £9bn education export business, has maintained a surplus over imports throughout the last five years. However, exports of services have remained flat.
Maintaining Washington's spending budgets between 2009 and 2012 against attacks from conservative forces in Congress kept the economy growing. That is the Keynesian view inside the White House and among liberal commentators, who argue that the reason the US economy is larger than it was in 2008 (the UK economy is still 2.7% smaller) is the result of government spending and investment.
Like Germany, the US has benefited from huge demand from China and the far east for industrial equipment and cars. As a result, exports have grown steadily and proved a major impetus to growth.
Germany, along with China, is the global export champion, and while the crisis has hurt purchases of German goods in parts of the EU, its performance continues to excel, helping the EU to a rising exports record.
German exports grew 4.3% last year to over €1tn, according to the federal statistics office, with a more than 10% increase in sales to non-EU countries compensating for stagnation in European exports.
EU exports collapsed by more than €200bn in 2009 compared with the previous year, but have since recovered.
InvestmentIn the four years since the crash, investment and productivity have been low in Britain. In 2010, the Office for Budget Responsibility forecast that an 8% rise in business investment in 2011 would help haul the UK out of its slump. It never materialised. Instead businesses have sat on cash and investment was 10% lower in 2012 than 2010.
Business investment in the US has been disappointing, although US companies borrowed more in July than they did a year ago – an encouraging sign for the US economy. Foreign direct investment into the US, at $3.5tn, is 17% of the global total in 2011 – down from 39% in 1999.
The EU business investment climate remains grim because of the credit crunch, the banks' reluctance to lend and because of the traditional national retrenchment in times of crisis, with the European Central Bank registering a sharp decline in cross-border investment in the Eurozone.
According to Eurostat, foreign direct investment in the EU fell to its lowest level since 2005 last year, or by a third on 2011. EU FDI abroad was even worse hit, falling by 54% or to the level of 2004.
HousingMortgage approvals are up by 10% over the last year and prices by 5.4%, according to Halifax, while estate agent LSL painted an even more upbeat picture. It said mortgage applications were up 45% on the previous year.
The rush of mortgage applications follows the implementation of the Bank of England's funding for lending scheme, which effectively subsidises banks that offer lower mortgage rates, and the Treasury's Help to Buy scheme.
The Institute of Directors has described the stimulus to the housing market as "bonkers". But there are counterarguments. With transactions at two-thirds of their 2007 peak, prices are finally reacting as much to pent-up demand as to the prospect of economic growth.
The US experienced the biggest property price crash of any developed nation, with prices down by up to 50% in the south-western states and Florida. But the market is now turning around, with the worst-hit states now recording the biggest increases. The Standard & Poor's/Case Shiller index showed prices 12.1% higher in June compared with a year earlier.
Across southern Europe and Ireland, house prices have fallen by up to 50%, but there are signs that the worst is over. Berlin, Munich and Frankfurt have led a price recovery.
The OECD, the Paris-based thinktank, says the UK's property prices are overvalued by around 22% – but that French property is overvalued by 36% and Belgium by 50%.
The regionsWorkers in the north-west have been the hardest hit according to the TUC's latest employment study. The average hourly pay fell from £11.43 in 2007 to £10.52 in 2012 – an 8% real-terms drop. Newcastle's property market may be racing ahead, but in nearby Darlington, workers have seen their hourly real-pay rates fall by 16.2% in the last five years – a huge £75.94 real-terms cut in the weekly pay packets of full-time employees.
Critics of the White House have said the lack of jobs has allowed the gap between rich and poor to widen and prevented ordinary workers from enjoying the recovery. Detroit sits at the head of a growing list of towns, districts and rust-belt cities that have filed for bankruptcy or declared that they are on the brink of collapse.
The regional variations are big, with Austria, Germany, and Luxembourg boasting jobless rates of around 5%, while crisis-hit Greece and Spain have one in four out of work. For young jobless, the figure for Greece was 63% and for Spain 56%, with Croatia at the same level.
While EU leaders are sanguine that the worst of the crisis is behind them and Europe is projected to achieve low growth over the next year, analysts and officials warn there the employment pickup will be slower. European Commission officials monitoring the Irish bailout, for example, predict that it job creation could be a decade away.
EconomicsEconomic growth (GDP)Economic policyGreen shootsPhillip InmanIan Traynortheguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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