The UK’s headline inflation is steady at 2pc and has (for now) undercut a sticky 2.5pc in the eurozone, a level that leaves the European Central Bank in a bind.
“We have had Brexit, Covid and interest rates back to over 5pc, and yet we still haven’t seen the UK economy crack. We’ve basically adjusted to the new trade arrangements,” said David Owen from Saltmarsh Economics. “Services are doing really well, and that is a big surprise.”
The UK’s trade deficit in goods and services narrowed to 0.5pc of GDP in the first quarter. It is today closer to structural balance than it was during the later years of EU membership. This suggests to me that the post-Brexit reshuffle in supply chains has led to more import substitution than meets the eye, lifting output as companies reshore to subcontractors in the UK.
The OECD has forecast dismal figures for the UK as usual, pencilling in growth of 0.4pc for this year, below Japan, Italy, France, Canada and America. This looks increasingly unhinged. Right now the UK is probably growing faster than every one of them.
The rating agencies have been upgrading Britain quietly for some time. I suspect that we are at a turning point where broader economic opinion across the world drops the “basket-case” narrative on Britain and starts to think of it as a normal country, and something of a safe haven.
Rishi Sunak began to restore political stability 18 months ago. The rehabilitation is now complete under Sir Keir Starmer.
It is Europe that is becoming progressively less governable, splintering to Left and Right in a ferment of revolt against the status quo, but without the status quo actually changing in any respect.
The pressure cooker can never entirely let off steam because it is nigh on impossible to sack the EU’s executive government, even when it persists in error. The Commission sits on top of everything as a permanent secular papacy.
France is stuck in a constitutional crisis, with no obvious way of creating a viable government. This is the result of a gerrymandered electoral outcome that perpetuates a discredited Enarque regime and arbitrarily disenfranchises 11m people who voted for the “wrong” party. This is storing up an even greater crisis for next year.
The eurozone may spring back to life over coming months as energy costs fall and real incomes recover, but that is far from certain. The EU’s Stability Pact is biting again and fiscal tightening is on the way. The lagged effects of past rate rises by the ECB are still feeding through. Loan demand is dead, the M1 money supply is still contracting.
Nor is the world reassuring. The flood of Chinese exports escaping depression at home is still gathering force. The US housing market has buckled, and rising US unemployment is close to triggering the recessionary Sahm rule.
The UK is largely defenceless against all of these global forces. But for now, at least, we seem to be in rude good health. Mirabile dictu.
