Tread carefully around the green shoots of recovery
Talk of “green shoots” never fails to remind me of the wonderful Hal Ashby movie “Being There”, in which an illiterate gardener played by Peter Sellers ends up advising the US president on economic policy.
This week’s news that the UK’s economy may be experiencing the first signs of spring brought Ashby’s forgotten classic to mind once again. Although one would hope that our economic policy isn’t being formed by a vagrant knocked down during one of George Osborne’s late night “burger runs”.
According to one of the key measures of business and economic conditions - Markit’s Purchasing Managers Index (PMI) - the UK’s manufacturing sector enjoyed something of a surge in June, growing at its fastest rate in more than two years.
Anything above 50 indicates growth, and the PMI rose to 52.5 from an upwardly revised 51.5 in May. Analysts have put the growth down to a surge in orders both home and abroad, and in particular healthy exports to economies beyond the Eurozone. PMI data also suggests that the construction and service sectors are enjoying a period of accelerated growth.
These positive indicators are reinforced by the results of the British Chamber of Commerce’s (BCC) quarterly economic survey, which points to strong export balances and growing business confidence.
The EEF’s chief economist Lee Hopley welcomed the latest indicators as a cause for “cautious optimism”, and called on the UK to continue to look to build on its exports outside the non-EU markets. Meanwhile, BCC director general John Longworth described it as a “crucial moment” but warned that government needs to keep its “feet on the gas” to avoid choking off any burgeoning recovery.
This call was reiterated by CBI director general John Cridland who in a speech to business leaders in London this week said that economic growth depends upon the UK’s medium sized businesses having access to finance.
Cridland called on the government to make sure it treads carefully in its efforts to regulate and stabilise the banking system. ‘Choking off supply to shore up recovery will only hold back the very firms that should be driving growth’ he said.
Economists have also sounded a note of caution over weakening activity in the Chinese economy, which they fear could impact the UK’s recovery.
‘While good news is always welcome, manufacturers should not get carried away as we have seen short-lived recoveries before, said Carl Williamson, manufacturing sector lead at Lloyds Bank Commercial Banking. ‘The sector’s future health will be determined by continued global economic performance, notably in the Far East, as well as with our primary trading partners on the Continent.’
Is it too early to talk about green shoots? Certainly not. But as we’ve seen before green shoots are fragile, they’re easy to starve or trample. Government and business must now work hard to ensure the optimum conditions for growth and give these green shoots space to grow. In the words of Peter Sellers’ illiterate gardener, ‘as long as the roots are not severed, all is well. And all will be well in the garden.’