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The economy back in focus

New data will train a spotlight on the economy this week, but should not knock Labour's narrative off course

There has yet to be a detailed exchange on the economy in this election campaign. Gordon Brown did emphasise Labour's message in the leaders' debate last week - that we must not risk the recovery - and I know from experience that this has been resonating with voters. However, there might be more focus on the economy this week as new data is published.

Tuesday sees the publication of the latest inflation data but Wednesday is a more important day because unemployment data is released. The unemployment rate is 7.8 per cent at present and economists expect this to be constant, with a small fall in the number of people claiming Jobseekers' Allowance. The real surprise this recession has been that after a sharp rise, unemployment has not risen to the levels many feared. At below 2.5 million it is still well below the three million mark exceeded in the past two recessions; both under Tory governments which did not give such a great emphasis on jobs. Data on average earnings is also released on Wednesday. This could provoke some debate because end of year bonuses should feature in these figures. When we strip out bonuses, average earnings for working people are increasing around 1.4 per cent per year at present. However, as businesses become more confident of recovery they should begin hiring again which might put some upward pressure on salaries as well as reduce unemployment.

Thursday will see new government borrowing figures, which may create some excitement if they come in substantially below or above expectations though the focus in markets is more on the current fiscal year outlook, and the CBI will issue its quarterly industrial trends report. The final milestone this week is Friday's publication of the new GDP estimates. The first estimate for GDP growth in the first quarter of this year will be released. The last set of data showed that GDP rose 0.4 per cent in the fourth quarter of 2009. Some economists suggested the growth rate might fall in Q1 2010 because the heavy snow in January will have dampened economic activity. However, a report by the National Institute of Economic and Social Research forecast the growth rate at +0.4 per cent for the period January to March. The NIESR noted that given the heavy snow, this implied the economy grew at a faster rate afterwards - a healthy sign. The OECD recently forecast that the UK economy would grow the fastest of the OECD economies this year as it recovered from recession.

The indications from recent economic data do suggest there may be good news for Labour in these figures. If that is the case, we need to capitalise on it. Stronger than expected growth might lead some forecasters to predict a higher tax take - namely, better than expected public finances. The recovery will still be fragile however given the depth of the recession.

As always, economic data releases in election campaigns carry risks and don't necessarily tell the whole story. Harold Wilson experienced this in 1970 when a blip in balance of payments data appeared to undermine Labour's reputation on the economy. Economies don't tend to grow in straight lines - you have to look at how the overall picture is developing. Moreover, economic data is often revised by the Office of National Statistics as it receives more information. This happened with the last set of GDP data with the growth rate being revised up slightly in a later estimate. Any negative news from these data releases needs to be seen in this context but if data does surprise on the downside that will emphasise the risks to recovery from a Tory government will no credible alternative plan. However a particular data point turns out this week, it should not alter this key Labour message about the economy in this election.

This article was first published on the Progress website on 19 April 2010.

Progress 19 April 2010, 19/04/2010

Not an easy task given uncertainties, especially if energy and commodity prices do fall later in the year. Ultimately, radical economic reform required.
Central banks are struggling to head off general inflation while dealing with price shocks that will be negative for growth. They waited too long, which has made their tasks more difficult.
The Bank of England has raised interest rates, but that does not mean it has been most effectively managing inflation risks.
The Bank should signal it will act if higher prices look likely to translate to higher inflation rate.
The IMF's Fiscal Monitor is actually quite radical.
Spare a thought for finance ministers, and the opposition counterparts who aspire to replace them. The conventional wisdom was that they should at least make an attempt to follow fiscal rules. Now, there are no rules.
My letter in the Financial Times on the need for a framework for economic policy decision-making.
Responding to Brian Griffiths' article in The Article on the risks of inflation.