UK economic output rose by 0.8% between July and September, official GDP figures show. The data adds to a 0.7% GDP rise in the April-June period and is the best quarterly performance since 2010.
The ONS said that production grew by 0.5%, though this remains 12.8% off its 2008 level, while within this, manufacturing improved 0.9% in the third quarter. The service sector, which represents three-quarters of economic output, grew by 0.7% and is now 0.6% above its pre-crisis peak.
Amidst the general efforts to simulate joy over the ‘recovery’, the Institute of Directors remained with its feet on the ground. Its chief economist Graeme Leach said: ‘However, strong headwinds remain and the annual growth rate year-on-year is nothing to get too excited about yet. Though inflationary pressures are likely to remain benign, debt and inflation are rising faster than earnings.’
The attempts at elation also contrasted to the speech on Thursday evening by Bank of England governor Mark Carney, when he tried to deal with the problems of the decline of Britain in a situation of a world crisis of the capitalist system. Speaking on the 125th anniversary of the Financial Times, he contrasted the fortunes of British capitalism in the newspaper’s foundation year, 1888, with today.
He said London ‘was the world’s preeminent financial centre. It had the most international banks, the largest capital markets, and the deepest money and gold markets. It backed projects all over the world, and most of world trade was financed by bills drawn on London. Supporting the critical mass of banks, insurers and investors was an army of solicitors, accountants and clerks.’
He added: ‘Britain accounted for as much as a quarter of world trade and produced around a tenth of global GDP. Over the following 125 years the UK’s shares of world trade and output have fallen to around 3%. Despite some ups and downs, London has remained a centre of global finance. Partly as a consequence, the size of the UK’s financial sector relative to its economy has increased dramatically. When the FT was in its infancy, the assets of UK banks amounted to around 40% of GDP. By the end of last year, that ratio had risen tenfold.
‘As we have recently been painfully reminded, a specialisation in financial services carries risks as well as rewards. And those risks will grow, unless we put global banks and markets on a sounder footing.’ He added: ‘By 2050, UK banks’ assets could exceed nine times GDP, and that is to say nothing of the potentially rapid growth of foreign banking and shadow banking based in London.
‘Some would react to this prospect with horror. They would prefer that the UK financial services industry be slimmed down if not shut down. In the aftermath of the crisis, such sentiments have gone largely unchallenged.’
He continued: ‘It is not for the Bank of England to decide how big the financial sector should be. Our job is to ensure that it is safe. The UK can host a large and expanding financial sector safely, if we implement a reform agenda that extends well beyond domestic banking.’
However, he adds: ‘Unlike in the early days of the FT, the UK can no longer dictate standards. Rather than ruling the waves, we must spur collective action through a demonstrated commitment to openness and the promotion of better ideas in Europe and at the G20 via the Financial Stability Board (FSB). More fundamentally, such engagement would be timely because globalisation itself is under siege. Cross-border capital flows have fallen sharply since the crisis. Multilateral trade liberalisation has stalled, to the detriment of global prosperity. If we are to stem this tide towards financial fragmentation we must make global finance more resilient…To finish the job, international regulators need to agree over the next year new rules for capital to be held in banks’ trading books, a simple leverage ratio and a guideline which governs the stability of banks’ funding.’ World capitalism must be reorganised to save the British banks!
He concludes: ‘Alongside these efforts to increase resilience, our focus is on solving the problem of banks that are too big to fail. Systemic resilience depends on being able to resolve failing banks in a way that does not threaten the entire system. Fairness demands the end of a system that privatises gains but socialises losses. And simple economics dictates that the UK state cannot stand behind a banking system that is already many times the size of the economy…’ A new moment of truth for the British banks and British capitalism is fast approaching!