Hamish McRae: Picture’s brighter, so why the gloom?

Tomorrow, we get the next set of GDP figures, which will show growth running at an annual rate of about 3%, maybe a bit more.

We will in all probability officially be at the previous peak of output, although if you allow for the apparent increase in the “grey” or “cash in hand” economy over the past four years, we are already well past it.

That is estimated by Morgan Stanley to have added between 4% and 5% to output. This would square with the rise in employment and the fact that retail sales are up 4% on their peak. But though the economy is indubitably growing swiftly, we don’t seem to feel much better about it. Companies are optimistic, particularly in London; people aren’t, or at least say they aren’t. Why?

There seem to be two broad explanations. One is that the rise in economic activity has been associated with less desirable features such as increasing inequality and insecurity. There must be some truth in this. The combination of very low interest rates and quantitative easing has reignited the housing boom, and there are suggestions that prices could rise by another 10% over the coming year. The more expensive your house, the greater the increase in your wealth, and the greater the corresponding rise in inequality. As for insecurity, there has been the growth of zero-hours contracts, now being targeted by Labour, and the rise in self-employment.

It may well be that many people who have recently become self-employed actually prefer their new status, and a study for Resolution Trust found that nearly three-quarters of those people did. But being self-employed feels less secure than being in a job, even if in practice it isn’t. After all, working for the government or a bank used to be the most secure of jobs. That is no longer the case. Nowadays, insecurity is everywhere.

Rising inequality and insecurity have been widely noted. Less noted is the second broad explanation, which is our reaction to it. In a nutshell, it is the feeling that insofar as we are doing better in economic terms, it is the result of our own adaptability and resilience, rather than competent management by the Government.

One way of getting a handle on this is to look at the labour market. Published wages have fallen in real terms but people have found other ways of maintaining or increasing their incomes. These include renting out spare rooms, taking a second job, carrying on working in some form after retirement, starting a business and so on. Thus the Bank of England last week noted the apparent rise in entrepreneurship.

Technology makes this vastly easier. People can trade on eBay from their kitchen table. Many have a faster connection at home than in the office — and they also do not have to battle Tube strikes.

If someone is on screen, you don’t need to know where they physically are. Indeed, while the communications technologies initially encouraged businesses to send work offshore, it is now enabling them to bring it back onshore, because they can tap into a workforce that can be increased or cut with a few clicks of the mouse. It is becoming more efficient to have part-time teleworkers in the UK than full-time teleworkers in, for example, India — although the former are paid much higher hourly rates.

There are other shifts in our economic structure associated with the sense of resilience. One is the rise of the small company, for the entry cost into many activities has fallen. There seems to be much more room now for niche businesses, particularly in London and the South-East, and mostly but not entirely in services.