25 Jan 2012

UK slump returns – UK growth ‘decimated’

Britain probably is in the middle of a light recession now. We won’t know for sure until April. But today’s Q4 GDP number was doubly disappointing, if not, a great  surprise. For a start it was a larger fall than expected, at -0.2%. It showed weak construction and production figures.

It would be rather tough to blame this figure on the euro crisis. For a start, the decline in the German economy is estimated at being only fractionally larger at -0.25%. Whatever the contagion from our largest trading partner, I can’t imagine that Britain is as sensitive to a eurozone crisis as actual eurozone nations. No, there’s clearly an internally generated demand problem here.

I’ve spoken to three FTSE 100 bosses already today here at the World Economic Forum in Davos. None believe this number should make the Government change course.

However all have changed course in their domestic businesses, to deal with the empty pockets of the UK consumers. Radical changes in prices, product size, and marketing are the reality of corporate Britain at the coalface of a squeezed Britain.

But more than that, those corporations that are thriving are the ones that embraced the global growth markets long ago. On that score, the Government’s efforts on trade missions are getting a big thumbs-up. “I wouldn’t have got that deal in China without the help of the prime minister” is a comment I have heard a few times now.

The question for Britain is whether the opportunities to trade abroad can really take up the considerable slack from deflation of the UK consumer. This is the famous rebalancing act. Or should I call it the rebalancing theory, because it’s not happening so far.

One last fact: since the month of George Osborne’s spending review, October 2010, the UK economy has grown just 0.3%, in fifteen months. This is appalling. For context, the coalition’s deficit reduction plan in June 2010 anticipated 3% growth over that period. This is what you would call a growth “decimation”.

I think it’s fair to ask whether the Coalition would have pursued its overall macro strategy, knowing that the economy would essentially fail to grow.

Follow Faisal Islam on Twitter: @faisalislam