Election may be fought on peak between dips

April 14, 2010

campbellBy Ian Campbell

LONDON, April 13 (Reuters Breakingviews) – Gordon Brown says his Labour party will “secure the recovery” if it wins the UK election in May. The opposition Conservatives would kill the upturn, he says. Brown is right in one sense: the “recovery” can easily be broken. But only because it is so fragile in the first place.

The UK’s data looks more encouraging than it actually is. The UK needs exports and production to surge ahead. Trade figures released on April 13 might appear to herald that: February’s trade deficit was its smallest since June 2006.

But comparing the past three months with the three preceding months, the UK’s export volumes are up by a timid 1.5 percent, while imports rose by 3.8 percent. The UK needs an export charge. It simply hasn’t got one yet — in spite of the much weaker pound.

What the UK has had is a sustained charge in fiscal spending. The UK’s old stalwart, house prices, joined the advance last year. But here, the signs are turning down again. House prices in England and Wales rose at their slowest rate in March since last July, according to the Royal Institution of Chartered Surveyors.

Home-owners are starting to sell. Buyers are thin on the ground, ill-served by lending that remains soft.

Mortgage approvals were cut back in February and lending to businesses dropped in January, the Bank of England says. Money printing has not stimulated lending. True, the British Retail Consortium has reported an apparent surge in total retail sales in March. But this was after a depressed start to the year. Government data for the three months to February show sales down on the previous three months. Overall, first quarter GDP growth looks set to be weak.

To appease markets, the deficit will have to be cut hard after the election. The danger given weak growth is that standstill or even retreat prevails. None of the UK’s political parties wants to admit that. Instead, fire-fights take place over tax proposals worth a few billion pounds when almost 170 billion pounds of fiscal deficit needs to be closed. The politicians are waging a phony war over the preservation of a frail recovery.

(Editing by Chris Hughes and David Evans)

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