Traditional strengths have put the UK on the road to recovery

Speaking to an audience at Leeds Metropolitan University, Tom Vosa said the world economy continues to heal but warned that political decisions have the potential to derail the recovery.

Mr Vosa, who is head of European market economics at National Australia Bank, said financial and business services are driving the UK recovery.

He said: “We were told the banking system would never be allowed to get as big again. It’s now bigger than it was in 2008, along with business services as well.

“It may not be a bad thing. The UK clearly has a massive competitive advantage in services, whether it is education, finance or media.

“It does suggest that Government attempts to rebalance the economy from a command and control system from above are destined to failure.

“What’s worked are the traditional strengths of the UK economy and we shouldn’t forget that.”

Mr Vosa said compensation for mis-sold payment protection insurance has been brilliant for the Government.

He compared PPI payouts to “a massive windfall tax” on the banking sector and raised the prospect of similar raids on the energy and insurance sectors.

“The amazing thing about banks being evil and stupid is you fine them for doing so,” said Mr Vosa. “You can think of the PPI repayments as pure helicopter money.”

The banking industry has paid out £13bn so far and acknowledges that payouts could rise to £20bn.

Mr Vosa said PPI compensation has been funding consumption, with most repayments going into the car market.

When it runs out, there is potential for more payouts from credit card protection, managed accounts and interest rate swap mis-selling to corporates, he added.

“All you need to find is a big industry which is a quasi-monopoly and then fine it, keep fining it and give the money back to UK households,” said Mr Vosa.

“It’s a brilliant way of providing a self-funding tax cut.”

The economist said business investment has been the missing link in the UK economy, although there are signs that corporates are more willing to spend and banks are more willing to provide them with credit.

Mr Vosa said the Yorkshire economy has lagged the UK according to some measures, but others suggest that the private sector is doing very well.

The region’s exporters performed strongly throughout 2013, in spite of Yorkshire not having a car industry, he added.

Employment growth stalled in Yorkshire last year, apart from in the real estate sector, which has added 25,000 new jobs in the year to September 2013.

Looking ahead, he said investment intentions are strong in Yorkshire. “That’s really crucial,” he said. “That should drive employment growth. We need to see it broadening out.”

Mr Vosa has had a bearish outlook on the UK economy since 2008. This time last year, he predicted that the UK economy would grow by 1 per cent in 2013.

Yesterday, he revealed that he has revised up this figure to 1.9 per cent. This year, he expects the UK economy to grow by 2.5 per cent, his most optimistic since 2007.

“This will be the best performance we have seen in the UK since the global financial crisis,” he said.

He predicts that the global $72 trillion global economy will continue healing, with advanced economies driving the growth.

He expects to see more foreign exchange volatility in emerging markets, especially among the ‘Fragile Five’ of Turkey, India, Indonesia, Brazil and South Africa.

He said: “The recovery in advanced economies has been based more on animal spirits and confidence. People believe central banks can save them.

“Our central case for this year is muddling through, but politics can disrupt.

“Will we get a budget deal in the States? Will eurozone divergences get worse and will that poison the debate on fiscal union?”

The European elections in May could be another flashpoint, particularly if a Eurosceptic party wins a lot of seats, he added.

Mr Vosa was speaking at Leeds Business School’s annual lecture programme.

Forthcoming speakers include Michael Woodford, the former CEO of Olympus who blew the whistle on a £1.1bn accounting fraud at the Japanese multinational, Hugh Pym, the BBC’s chief economics correspondent, and Rob Forkan, one of the two orphaned brothers who founded Gandys Flip Flops.