25th April 2012
Today has seen the publication of the latest economic growth figures for the UK. The Office for National Statistics has told us that in the first quarter of 2012 the UK economy in fact shrank as shown below.
So we are back in a recession according to the definition of two subsequent quarters of falling economic ouput and the major factor causing this is shown below.
You may also like to view this rather grim postscript to it.
If one is looking for a musical theme for this it looks like we have spent the last year following the advice of Talking Heads.
We’re on a road to nowhere
It is not the only body which looks to record UK growth as earlier this month we received this from the National Institute of Economic and Social Research:
'Our monthly estimates of GDP suggest that output grew by 0.1 per cent in the three months ending in March after no growth in the three months ending in February 2012.'
The NIESR also has an interesting view on whether the UK is in a depression which it defines as ” a period when output is depressed below its previous peak”. On such a definition it feels that 'the period of depression is likely to continue for some time. We do not expect output to pass its peak in early 2008 until 2014.'
An interesting view is it not? By their measure we are not in recession but we are in a depression! What is particularly interesting from their chart is that this period of depression is different from past ones. They would all be showing clear signs of recovery by now but this one is not,in medical terms we are flat-lining. By now even the 1930-34 depression had a level of economic output which had exceeded the previous peak whereas we remain just over 4% below it.
Since then we have discovered that the Office for National Statistics thinks that the UK is in a recession. Not much of a double-act is it? One putting us in recession and the other in a depression…
Why might this be?
There are particular features of a credit crunch that make a recovery harder than a conventional recession. However I feel that all the intervention and extraordinary monetary stimulus that has been provided has simply not worked and via its impact on real wages (which are falling) may have made things worse. Also the banking sector which is the one most responsible for our predicament has been bailed out but crucially not reformed. We have made the mistake of the Japanese in allowing zombie banks to continue and this led to a what is called a “lost decade” for them but now encompasses two decades.
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