28 Mar 2012

No growth Britain’ looks concerning even from pained Spain

I am sitting in a cafe in Mostolles, northern Madrid. It is a Wednesday, so it’s “one euro day” where everything from mini bocadillos to ensaladas cost one euro. Spain is officially back in recession, according to its central bank. More on the pain in Spain tomorrow.

For now I had thought that my location would be a rather apt place to discuss just why Britain’s economy fell more than originally thought in the final quarter of last year. One of the reasons the Q4 2011 -0.2 per cent has turned to -0.3 per cent is that trade data has been revised sharply downwards. When viewed alongside declines in German and eurozone GDP (though not France) you can begin to see that the euro crisis effect did impact on the numbers.

But the alibi stretches only so far. The truly shocking figure requires an interrogation of the figures, and the levels of GDP. The size of the UK economy is now 98.3 (on an index which scores the 2008 economy at 100). This is exactly the same as the size in October 2010. In other words, taking into account, alternate upswings and downswings, the UK has not grown since October 2010, also the month of the spending review. That’s right, ZERO growth in 5 quarters, 15 months, for which the Coalition’s original deficit reduction plan had pencilled in three per cent.

Take it further back, and you of get an economy that is 0.6 per cent bigger in the six quarters that George Osborne has been at Number 11 (3.6 per cent forecast by deficit reduction plan in June 2010). For context, the economy grew by 1.1 per cent in the single quarter immediately before that, Alistair Darling’s last.

Whichever way you slice it, you can’t blame the eurozone crisis for the now prolonged trend of economic underperformance in Britain. It probably did have an impact in the last quarter. The concern is that going forward, this zig-zagging pattern will continue, partially distorted by the Jubilee, Olympics etc, as indicated by the Bank of England.

Does this mean government economic policy has failed? Not necessarily. As the IMF has argued, the lower growth works like an insurance policy for Britain against the nightmare of a sovereign crisis and rising interest rates currently suffered from the place I’m in right now. What my figures show is that insurance policy is proving more expensive than anyone forecast at the time. The longer it takes for sustained growth to emerge from the radical market-based reforms of this government, the stronger the critical voices from left and right will be.

Perhaps the bigger miracle is that austerity has kicked off without a formal return to recession in Britain, as we have here in Spain. But that will be little consolation for a chancellor who may have to wait a few quarters more to shed the “No Growth” tag.

More on Spain soon.

Follow Faisal on Twitter: @faisalislam

9 reader comments

  1. Philip says:

    Meanwhile more and more people, young people in particular, are unemployed and increasingly see little hope for the future. How does that correlate with the recent report on last summer’s riots! As usual, the need to keep in with the money men subjugates social policy and cohesion. We are storing up massive trouble for the future & increasing the cost of tackling it. With much of the post-Thatcher consumerist (there’s no such thing as society) imbued in the thinking of the better-off voters and cynicism among many of the less well-off that ANY government will do anything serious to help them, the riots could just be the start of something profoundly worse – and we shall deserve it

  2. Arup Ghosh says:


  3. Kes says:

    I am surprised you are baffled, Faisal. It takes one heck of a time to ruin or rebuild an economy. It took Gordon Brown 10 years to destroy the generally sound economy he inherited. Similarly, it will take many years to repair the damage. I bet we can look forward to some years of poor growth unless governments globally decide to inflate their way out of the general mess.

    1. Philip says:

      By and large the “sound economy” was wrecked by a world-wide financial crisis and I doubt whether there would have been any difference if Osborne had been Chancellor. Indeed, he backed Government spending plans well into 2007. And one can argue that Brown did a better job than he would have done in managing the immediate impact of the financial crisis.
      It’s also worth remembering that the previous recession in the 1990s was manufactured entirely by the effects of Conservative government policies in the late eighties in slashing taxes and creating a balance of payments crisis, which the UK alone enjoyed.

  4. Charles Jurcich says:

    “That’s right, ZERO growth in 5 quarters”

    We,ve also seen 5 quarters of shrinking broad money according to the M4 measure.

  5. Poodle says:

    I own a small tattoo studio, where i desperately need to expand, to move I want to buy a property nearby. I cannot get a remortgage on my own property due to equity, i cannot get a grant from the european union, the owners of the property (the church) will not lease it to me – rather it be stood empty. Its a joke, If i move i can take on 3 more staff, thats THREE!!!!! people in work, staying where i am now i will have to let one of my staff go as i havent got the room for them. I have asked complete strangers for investment (i want a loan not a gift). Talk about helping small business – what a laugh!
    GAME, the computer game retailer, is in a mess, built on bank loans, run and bank loans and now being bailed out by the bank of scotland on more credit. I drove a taxi, day and night to start my business, i owe nothing to nobody. Thanks to all the do-gooding government grants and schemes – but youve done and are doing absolutely ‘sod’ all for me!!

  6. David says:

    Hey Philip
    Credit where its due. Gordon gave the gold away at rock bottom price. Tony and Gordon squandered squillions on failed IT projects – ID cards, National Medical records. Then there were two wars Iraq (based on lies) and Afghanistan (based on the half witted idea that fighting there makes us safe). Under Tony and Gordon the national benefits bill more than doubled (to buy votes), immigration – both legal and illegal soared at huge expense to the economy.
    We all know that LABOUR ate all of our pies.

  7. David Winrow says:

    The tanker drivers have been provoked into a health & safety dispute ……..i wonder if increased petrols sales at the end of this month, will make the first quarter of 2012 look a little healthier on the books ! I
    it looks like things have back fired on that poor women and the government

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