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It's the economy, stupid

Bill Clinton’s slogan came to mind this week. The retiring Governor of the Bank of England published his final report on the state of the economy but the headlines were hijacked by the Conservative backbench rebellion on Europe.

Despite the PM’s draft Bill committing his party to a referendum on UK membership of the EU if the Conservatives are elected in 2015, 114 backbenchers voted for an amendment to the Loyal Address in response to the Queen’s Speech regretting an omission of any reference to a referendum in the Speech. The amendment was defeated 130 to 277, exposing the reality that there is no majority in this Parliament for a referendum that could take us out of the EU. 

Underlying this debate, and virtually every other debate at the moment, is the state of the economy. Sir Mervyn King’s report offered some encouragement, raising his growth forecast for the year from 0.9% to 1.2% and noting increased confidence in the financial markets and amongst consumers. Consumer spending rose by 3.6% in April. At the same time, unemployment increased in the last quarter by 15,000 to 2.52 million (7.8%). Youth unemployment bucked this trend by falling 17,000 but that still leaves 958,000 unemployed. Opposition critics suggested that the gains included part-time and temporary jobs so there are no grounds for complacency.

Whilst any evidence of economic growth is welcome so far as job creation is concerned, higher growth rates are needed to reduce this waste of human resources and move young people out of the welfare system into sustainable jobs. That is equally relevant to Ed Miliband’s One Nation theme and Cameron’s desire to fuel aspiration and enterprise. Any party that ignores youth unemployment will pay a heavy price in future elections. The challenge is to find ways of stimulating real growth that does not increase inflation or damage the environment. Nor should this growth depend on more public or private debt. That caused the mess from which we are now trying to escape. 

Increased consumer spending in April will help to increase business confidence and fuel growth but after a period of austerity, with inflation at 2.8%, this is not a quick fix solution. Household debt has come down but is still 140% of incomes. The bank has pumped money into the economy through quantitative easing but this ‘medicine’ cannot be administered indefinitely. Traditionally growth was triggered by increasing supplies of capital, labour and land. Capital is tight. Labour is available provided it has the required skills. Land is under pressure in our densely populated island and further exploitation could encroach on much needed green belt, adding to pressures on the environment and increasing global warming. 

A Christian contribution to this issue includes the duty to be good stewards of our wealth, talents, time and God’s earth. We are also called to look out for needy neighbours and prioritise their well-being before our own. How many of us forgot these values in the years of plenty?