The Office for National Statistics today released figures on the performance of the UK economy in the last quarter of 2010 which showed that the UK economy contracted by 0.5 per cent in following growth of 0.7 per cent in the previous quarter. These figures make grim reading for the coalition Government. One more set of figures like these and the UK will be formally back in recession – the dreaded double-dip recession which many of us have feared for some time.
Much of the media comment on this has talked about the “surprise” of these results. It is difficult to see why this should have been such a surprise. Many of us have been arguing for sometime that the best the UK economy can hope to do in the foreseeable future is bump along the bottom showing low growth rates and occasionally slipping into contraction. Consider the following:-
• Trading in the Eurozone is not good
• The World financial system is in crisis
• Many companies having reduced stocks in the recession have rebuilt those stocks (thus increasing GDP in the first three quarters of 2010) but this has come to an end
• There are major job losses in the public sector and many more face job-insecurity
In the light of the above, the question has to be repeated – why were these figures a surprise? This seems to continue a trend in recent years of independent economic commentators being far too optimistic about the prospects of the UK economy. At several points during recession, independent commentators forecast that the recession would end in the next quarter only to find that it didn’t. I suggest we need a bit more realism in this area.
The figures come at a time when the Labour Party has a new shadow chancellor, the aggressive Ed Balls, who is certain to lambaste Chancellor George Osborne over his handling of the economy and, in particular his approach to cutting the public sector deficit quickly. Mr Balls has always maintained the pace of deficit reduction is too fast and will damage the performance of the economy. His view is that the cuts are more political and less economic. There seems a fair chance that he will be proved correct. Furthermore, the results come a day after the Government was heavily criticised by the outgoing CBI director, Sir Richard Lambert, who accused them of following economic policies that could damage companies and job prospects. Sir Richard said ministers had followed policies for political reasons, careless of their effect on business.
The published economic figures are, of course, UK wide and are, as always, distorted by the overwhelming influence of the London economy on the UK. No doubt a closer analysis of the figures will show that many of the poorer regions of the UK have done worse, in economic terms than the overall UK figures will show. No doubt these will be the same regions who will suffer most from the benefit changes and public service cuts being initiated by the Government. Like most Governments before it the present government cannot see that the while the huge economic imbalances between London/South East and the rest of the country still exist then the UK will never have a healthy and sustainable economy.