3rd November 2011
The figures have been greeted with near universal predictions of further pain for the UK economy; higher unemployment, weak manufacturing and sliding consumer spending. But – bearing in mind that the consensus is usually wrong – is it worth asking whether gloom has now become consensual?
Pessimism across the board
Of course, some pessimism would be expected from opposition politicians, but there is this from the Guardian:
"The eurozone crisis risks hastening Britain's drop back into recession, economists warned after the latest growth figures confirmed the UK was battling through the rockiest recovery since the Great Depression."
The comments of Brendan Barber, TUC General Secretary are typical of the prevailing mood:
"This was meant to be the quarter when the UK economy started bouncing back, but that hasn't happened. You have to go back nearly a century to find a slower recovery from a crash. What's worse is that this is economic self-harm. The government's deep austerity programme has choked off what was always going to be a slow and difficult recovery. No doubt ministers will try and blame the Eurozone crisis, but these figures date from before the recent difficulties."
Schroders' European Economist Azad Zangana says that the real worry is the manufacturing sector:
"Although an increase, this latest UK GDP number is by no means a signal that recessionary fears have abated. Indeed, this could be the strongest GDP number we see for a few quarters as leading indicators are pointing towards a meaningful slowdown. The Manufacturing PMI released this morning by Markit fell very sharply from 50.8 in September to 47.4 in October (50 is the neutral point between expansion and contraction) – the weakest level since June 2009."
"While we are not forecasting a recession in the UK in the near-term, the risks are escalating as the European debt crisis appears to have taken a nasty turn."
Services Sector: A reason to be optimistic?
Certainly the weak manufacturing sector is a cause for concern. But the growth figures were driven by a 0.7% rise in the services sector with particular strength in the transport, storage and communications industries. The services sector accounts for around three-quarters of the UK economy. If the largest part of the economy is doing well, is that not cause for some optimism?
Certainly johndeed on the Telegraph site thinks that economists reaction has been overly gloomy: "I have never seen or heard so many pessimists in the UK….By the end of today this bit of positive news will have turned into, ‘Britain slumps into recession', ‘5 million people lost their jobs today'. No wonder the Aussies call us whingeing poms, I'm starting to think they are right."
The Government has put a positive spin on the figures, but that is only to be expected.