Spending and sparkle, but we still need some fresh thinking

Shoppers in Ipswich town centre.

Shoppers in Ipswich town centre. - Credit: Archant

This week’s good news on the local economy bears out what has been clear for some time – there is a general perception the country is finally starting to emerge from the recession.

I have another element to throw into the debate: Christmas shoppers appear to be spending much more and much earlier than for the past few years. On Saturday I bumped into Ipswich Central chief executive Paul Clement during a visit to the town, and I said the streets seemed much busier than for some time. Traders had told him the same story. It’s too early to have any meaningful data to analyse, but he said he’d be surprised if this year’s Christmas season wasn’t the best since the recession hit with a vengeance five years ago.

So what is behind this? Are things really feeling better, or have we just all had too much doom and gloom and are determined to eat, drink and be merry for tomorrow we die?

I don’t believe there are many families feeling that much better off than five years ago.

We may have avoided huge rises in unemployment, but GDP has not recovered to pre-recession levels even though the unemployment rate has not soared. That means millions of people are today earning less in real terms than they did at the start of the recession.

If they are spending more this Christmas, it is because they feel a bit more confident about loading more onto their credit cards – or because they are boosting the profits of the payday lenders.

The rise in house prices is fine for those of us already on the housing ladder – but it is very worrying for those hoping to buy a home, and a serious threat for the future. Interest rates remain at an all-time low. Once the economy is truly recovering, it will be impossible to resist the need to raise rates. For those who have taken out a first mortgage when rates are so low, this is very worrying.

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A first-time buyer with a £100k mortgage based on a base rate of 0.5% is fine. But what happens when the base rate goes up 10 times to 5%. Some of us can remember paying the mortgage when the base rate was 15%. How would those first-time buyers cope then?

What is also significant about Britain is that the Government has failed in its ambition to “re-model” the economy by increasing the manufacturing sector. How many of the items in your home were made in the UK? Our economy continues to be based on service industries – banking, insurance, retail... all vital in the 21st century, but as new economies grow and become more sophisticated, they will develop these sectors themselves.

Certainly the British economy is looking better than a few years ago. Growth is welcome. But the Government will be doing no-one a service if it rests on its laurels and tries to return to the position pre-2008 in a bid to win the 2015 election. The days when Ipswich and Bury St Edmunds were hotbeds of manufacturing are probably gone for good – and insurance will continue to be important in this part of the world. But we have to see more new thinking from the Government before I will be convinced we have learned the lessons of the recession.

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