Politically the Coalition can take justified comfort in the strong performance, relative to weakness elsewhere, of the UK economy and if this can be sustained it will place the Coalition parties in pole position for the general election next year. Unfortunately it is not a simple as that. There are other political issues and they are questions about the durability of the recovery.
First the political issues. The Tories are badly split over Europe and there is no way of bridging the divide between pro and anti Europe wings. Split parties never do well and especially not with an active predator syphoning off votes; in this case UKIP. Labour lacks a credible economic policy to challenge the Coalition and although it makes impact with its cost of living crisis theme, this will be out gunned by the fact of a growing economy, if that is sustained. The Liberal Democrats have made themselves a laughing stock over Rennard, and moreover and more damaging, now appear misogynistic and anti-women. In other words each political party has an Achilles heal and none of the three main parties heads into the election with a reliable following wind. The fourth party not only has a following wind, but increasingly will make the weather; the outcome in 2015 will depend largely on the performance of UKIP.
The economic questions are more fundamental and harder to call. The economy is now recovering strongly, but it is not a substantially re-structured and reconfigured model as promised in 2010; it is a modified and improved version of the old. It will work better than before because welfare has been overhauled, the State has been reduced and the deficit is coming down. Manufacturing is up and exports are strong. Unemployment is falling fast. All this means that what we can call the old economy is alive and back on track.
The new economy, founded on production rather than consumption, investment rather than borrowing, exports rather than imports and trade and budget surpluses rather than deficits is nowhere in sight, nor is it ever likely to be on the road now chosen. Once again we have a consumer led recovery funded by debt secured on above inflation house price rises. This path is well trodden. We all know where it goes. It goes only one way. First to boom and then to bust.
The boom will likely survive until after the general election. It will then turn sour. Whoever wins, therefore, will drink from a poisoned chalice.