Henry G Manson on the week’s big economic news
This week the new Governor of the Bank of England shifted interest rate setting policy by indicating rates shouldnâ€™t increase until unemployment falls to 7%. Acknowledging unemployment as a key indicator of economic health makes sense, but when Carney examines the breakdownÂ Â of unemployment figures in the UK he will see a mixed picture as in the chart.
Whatâ€™s clear is that when the 7% rate is eventually reached it will not be distributed equally throughout the UK
The recent uproar over Lord Howellâ€™s fracking comments about the â€˜desolate northâ€™ shows the sensitivities of the north being treated as a second class citizen. It reminded me that 15 years ago another Governor of the Bank of England told a boozy lunch of London journalists that unemployment in the North could be a price worth paying for the prosperity in the South, which led to calls for his resignation from. Mark Carneyâ€™s far too slick an operator to make such a gaffe. However what if, quite unintentionally under Carneyâ€™s plans a buoyant Southern economy triggers an interest rate rise for the whole country while other parts of the UK struggle to recover? Rising employment in the South could quite conceivably trigger home repossessions in the North.
Iâ€™ve previously warned of the risks that the North West region would not share in the economic recovery and the electoral implications this may for the Coalition parties. I stand by that. But there are a growing number challenges for Labour. For example Mark Carney doesnâ€™t expect the 7% unemployment rate to be reached until after the next election – in itself is a sad reflection on the trajectory of the current governmentâ€™s economic performance but politically peace of mind for others.
With Labour likely to be in power of some sort, the partyâ€™s rhetoric of a â€˜one nationâ€™ economic strategy will be rigorously tested against expectations – and unemployment will feature. Correcting the fact that some regions now haves considerably higher numbers of people out of work than others will not happen overnight. But will it happen at all? There appears to be little new thinking from Labourâ€™s Shadow Treasury Team on ways to achieve economic growth in the regions with less money and for those areas with the highest unemployment. In contrast to Vince Cableâ€™s remarks, Ed Ballsâ€™ past reassurances to the City of London give the impression of simply wanting to return to 2006 again.
If a â€˜one nation economyâ€™ is simply to take a bit from those at the top to give to those at the bottom then surely it will disappoint and miss the point? Labour should be aspiring to create an economy where life chances are not fundamentally cast according to the region you live in – the ultimate postcode lottery. All parts of the country should pull together for shared national prosperity and so on.Â
Is it too much to expect a government to deliver an economic recovery that reduces unemployment without widening regional imbalances further in the process? Carney has raised the bar this week, but it remains unclear as to whether many of our politicians are ready to.