25 Apr 2013

No triple dip – not that it really ever mattered

It is an encouraging number for the chancellor and for the economy. A sigh of relief, more than “mission accomplished”.

There is little sign that the Treasury or the chancellor is getting carried away with this, and rightly so. 0.3 per cent growth merely makes up for the fall in the previous quarter. Growth has been flat for six months. Of course it could have been worse, but it is a relief that there is now no new recession.

Longer term, however the picture is unchanged. The economy is flat to very slowly growing, liable to be hit by any shock that comes its way. The chancellor’s original deficit reduction plan pencilled in 7.1 per cent growth by now. In his time at Number 11, we have had 1.8 per cent. Since the spending review, that was 6.5 per cent, and we have got 1.2 per cent (although that was negative last year, so it’s progress).

Services have bounced back alongside the stabilisation of the eurozone. Production did not do too well, but was helped by a reversal of the North Sea oil outtage. Construction recorded an appalling figure of -2.5 per cent in the quarter. It is not difficult to see where growth might come from.

So a neutral end to a bad few days for the Chancellor.

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3 reader comments

  1. brunothebear says:

    Do we know how much utilities profits have contributed to growth in service sector? Includes publicly subsidised rail profits? How much has bail-out/QE acted as anti-plunge mech for FTSE? Much of private sector reliant on investments, private eq from state propped finance sector. How much risk of debt exposure? Is much of private service sector in ‘false’ position due to this?http://www.telegraph.co.uk/finance/personalfinance/10014779/Water-bills-rise-64pc-in-a-decade.html

  2. Philip says:

    Given that the figures are revised on average by + or – 0.4%, this announcement may or may not mean what it seems to mean. It certainly doesn’t suggest that the “economy is beginning to heal after a big shock” as Osborne optimistically claims. I wish most of our politicians would follow Attlee’s advice to Sir Stafford Cripps – “a period of silence from you would be welcome”. When they utter garbage, silence is preferable.

  3. Andrew Dundas says:

    Interesting debate in the FT adds to these considerations. It’s now being recognised that the Reinhart & Rogoff much quoted analysis of the supposed relationship between Sovereign debts & growth is incomplete.
    Their research didn’t include the effects of interest rates on GDP growths.
    When interest rates on Sovereign debt are way below inflation, the impact of debt levels does not affect growth in ways that R&R predict. Moreover, the effect of QE actually reduces Sovereign debt costs: our BoE receives interest & pays it back to HM Treasury!
    So there’s no need to be wary of deficit because it doesn’t incur real interest!
    All that squeeze was NOT needed after all. We could reduce VAT to stimulate economy without R&R’s assumed dire results.
    Much more important than GDP data!

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