At the last Budget a quarter of the world was in recession. Now global growth has returned and the confidence of the British consumer revived. Ed Crooks examines the year of the great British comeback

Last year, reports of the death of the British economy proved to be wildly exaggerated.

Businesses and consumers tottered nervously into 1999. Twelve months later, they bounced - for the most part - exuberantly into 2000, looking forward to a prosperous new year.

A year ago, the chancellor and the Bank of England were trying to reassure consumers. Now, the problem is working out how to tame them.

The great weakness in the economy, is the plight of manufacturers and exporters caused by the strength of the pound.

The problem is less severe than it might have been, because of the world economy's remarkably speedy recovery from the financial crisis of 1997-98.

At the last Budget, a quarter of the world was in recession. But since then, Asia has begun to bounce back; Europe has picked up speed, and the astounding performance of the US economy has continued unabated. Global growth has gone back towards its pre-crisis levels.

The other big story of the year has been the revival of the British consumer. Fuelled by rising share prices and house prices, personal wealth rose by 16 per cent in real terms during 1999. Contrary to the predictions of the doom-mongers, unemployment continued to decline, and wages grew strongly.

The result was a surge in borrowing and a collapse in saving to levels not seen since the end of the 1980s - although not to the extreme degree seen in the last great boom. Consumer spending powered ahead.

From September, the Bank of England began putting interest rates back up, reversing the cuts made earlier in the year. There are signs now that consumers may be running out of steam. Mortgage lending and retail sales growth have slowed. The upward progress of interest rates may not have too much further to run.

But that is of little comfort to manufacturers, still being agonisingly squeezed by the strength of the pound against the euro. In the autumn, as the pound slipped to DM2.80, manufacturing output began to recover quite strongly. But since then, the pound has gone all the way up to DM3.20. Surveys and official output figures now point to a further slowdown.

The recent problems of Rover and Harland & Wolff are both in part manifestations of the problems now faced by all manufacturers and exporters because of the pound's strength.

The chancellor's over-riding priority was not to do anything to make their lives even harder.




Global growth bounces back . . . .





and so do share prices . . .





fuelling consumer spending . . .





. . .and further growth

RELATED ARTICLES
FORECAST: Demand prompts revision of growth