Stagnation lies ahead

I was in London today at the UNISON bargaining seminar. I have valued the TUC economist Richard Exell's posts on the Touchstone blog, so I was keen to hear his presentation.

With his trademark graphs he showed that we are in the slowest recovery from recession for 125 years, yes that's the 1880's! This is because household spending is still depressed, trade is negative and investment is low. No surprises there, but I hadn't realised that household spending started to decline well before the crash, in 2005. The causes are clearly linked to negative wage growth. In Richard's view we may not get back to 2009 levels until 2021. So this longest recovery from recession is set to run and run.

While there has been an increase in employment, most of this is part-time work and self-employment. Hardly the best time to be starting a business and he pointed to the many workers who have invested their redundancy payments, only to lose it all. A more relevant statistic is the ratio of unemployed people to job vacancies. This shot up from just over 2-1 to nearly 6-1in 2008 and has remained stubbornly at that level ever since.

Not much joy in the city forecasts either. Modest growth at best, unemployment remaining at current levels and borrowing levels broadly unchanged. Even the IMF forecasts have been downgraded.

His conclusion was that the second dip may be ending, but stagnation lies ahead. This is due to real wages remaining depressed. With government policy rooted in public service cuts and wage freezes, there is little cause for optimism.