Debunking UK economic myths

29th June 2012

Here Mindful Money takes a look at some of the myths surrounding state finances, and the reality – the good and the bad.

 

Myth: The government is bringing debt down

Liberal Democrat Voice points out that the government and media persists in confusing the different concepts of deficit – the excess gap between what we earn and what we spend as a nation in a year – and debt, or the accumulation over years of all our borrowing. This makes for a distorted picture, when the figures show that the UK's debt is set to increase.

It details the public debt figures for the UK which show an undeniable increase and a clear example of when the figures do the talking:

 

Myth: The economy is shrinking

Officially, the economy shrank at the start of the year.

But is this really plausible? The three months to the end of April saw the private sector add nearly a record number of jobs, retail sales have picked up, and the purchasing manager surveys are reasonably positive.

So we need the hard numbers for tax receipts to give a better feeling for what is really happening, says Hamish McRae in the Independent.

 

Myth: Manufacturing is in a grim state

On the face of it, UK manufacturing looks to be suffering. The last set of Markit/CIPS Purchasing Managers Index figures showed the fastest month on month decline in the index's 20 year history.

However, according to a CBI survey, 17% of manufacturers reported that order books were above normal in June, compared with 28% who said they were below normal. The resulting balance of -11% was above the -17% reported in May, and above the long-term average.

However, The Guardian points out: "It is tempting to say that the surveys provide a more reliable guide to what is going on: they are forward looking, they don't suffer from the problems of seasonal adjustment that make life tough for the ONS, and they tally with the anecdotal evidence from the Bank of England and other agencies suggesting that demand for UK manufactured goods is relatively robust."

 

Myth: Unemployment is rising

Ask the man on the street and he'll tell you that the number of unemployed is on the rise.

However, most recent figures show that unemployment in the UK fell by 51,000 to 2.61m: "The ONS said the unemployment level in the UK overall was "showing some improvement"…The ONS added there were decreases in unemployment across all age groups, except for the over-65s. Overall, there were 29.28 million people in work, up 166,000 on the previous quarter. That was the largest quarterly increase since August 2010."

 

Myth: US approach is the reverse of the UK

As Liberal Democrat Voice points out, trying directly to compare and contrast two different economies such as the UK's and US's is tricky. "Nonetheless, many, especially on the left, have pointed to Obama's policies – and the relative success of the US economic recovery – as evidence that the Coalition's supposedly more extreme austerity policies are therefore flawed."

However, this comparison doesn't match reality. In fact, Obama cut federal spending by 0.9% in real terms from 2010/11 to 2011/12, identical to the UK's average real term cuts across this parliament.

 

More on Mindful Money:

Can falling oil prices revitalize the global economy?

Give your cash a caffeine shot by focusing on the FTSE 100

Moody’s Downgrades UK banks – But have ratings agencies lost their power?

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