UK shock contraction!

[Undesired Walrus]

The growth in the last quarter was only 0.5% says the ONS (http://www.bbc.co.uk/news/business-12272717).

Osborne blames it on the weather:
"These are obviously disappointing numbers, but the ONS has made it very clear that the fall in GDP was driven by the terrible weather in December," he said in a statement.

"There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather."

But the ONS says:
even if the weather impact had been excluded, activity would have been "flattish".

[brodski]

These contractions seem to be getting closer together. I think we need to ask ourselves “And what rough beast, its hour come
round at last, slouches towards Westminster to be born?”

[Darat]

"shock"? :(

[Undesired Walrus]

These contractions seem to be getting closer together. I think we need to ask ourselves “And what rough beast, its hour come
round at last, slouches towards Westminster to be born?”

Is this Andrew Rawnsley? It's the only source I can find for this quote.

[Uzzy]

Flattish does not equal Contraction.

[Darat]

Flattish does not equal Contraction.

The weather may well have had some impact but that's just reality!

[brodski]

Is this Andrew Rawnsley? It's the only source I can find for this quote.

I thought I was being original. Ah well.

[Undesired Walrus]

What the economists say. (http://www.guardian.co.uk/business/2011/jan/25/uk-gdp-figures-what-the-analysts-say)

[Puppycow]

The growth in the last quarter was only 0.5% says the ONS (http://www.bbc.co.uk/news/business-12272717).

Contracted by 0.5%, not grew by 0.5%. Please check again.

[Uzzy]

The biggest losers seem to be Construction (down 3.3%) and Mining (down 2.5%). Manufacturing went up 1.4%

Surprising figures, but even the ONS are saying that the contraction was mostly due to the weather.

[Puppycow]

The weakness of the pound is probably why manufacturing grew.

[Undesired Walrus]

Contracted by 0.5%, not grew by 0.5%. Please check again.

Oh, wow. I didn't realise it was -0.5%. I thought it was just disappointing growth.

So, another quarter of this is officially another recession?

[Darat]

What the economists say. (http://www.guardian.co.uk/business/2011/jan/25/uk-gdp-figures-what-the-analysts-say)

I asked one of the best on-line economists with a proven track record well above the rest of the herd if the UK will have a double dip recession, she answered "Definitely (http://web.ics.purdue.edu/~ssanty/cgi-bin/eightball.cgi)".

[Darat]

Oh, wow. I didn't realise it was -0.5%. I thought it was just disappointing growth.

So, another quarter of this is officially another recession?

Yes - but don't forget this is the first pass figure and it is more than likely to change so it could be revised up or down.

[Puppycow]

Oh, wow. I didn't realise it was -0.5%. I thought it was just disappointing growth.

So, another quarter of this is officially another recession?

I don't know about "officially" but one simple and widely used definition of a recession is two consecutive quarters of negative growth, so yes.

In America, an "official" recession is defined by a group of economists called the National Bureau of Economic Research and they don't actually have a fixed definition.

http://www.nber.org/cycles/recessions.html

Also, these numbers are preliminary estimates and are likely going to be revised a few more times in the future before they become "official." The NBER waits for these revisions before determining when a recession starts or ends, so it only becomes official quite some time after the fact.

[megaresp]

I asked one of the best on-line economists with a proven track record well above the rest of the herd if the UK will have a double dip recession, she answered "Definitely (http://web.ics.purdue.edu/%7Essanty/cgi-bin/eightball.cgi)".

That's weird. I asked the same 'expert' and was told 'no way!' Apparently my economic future is rosier than yours :D

[Darat]

That's weird. I asked the same 'expert' and was told 'no way!' Apparently my economic future is rosier than yours :D

That's an economist for you!

[Explorer]

The revised figures to come later will include consumer spending that was absent initially. That could make the final growth figure worse in negative terms. On other hand consumer spending could be much higher in December due to people trying to beat the VAT increase. We shall just have to wait and see.

At best, the last quarter was flat discounting the snow, and shows a worrying downward trend compared to the previous two quarters. With unemplyment up, inflation up, it is not a happy scenario for this coalition government.

Osborne has no option but to stick to his guns and pray very hard, as there is very little else he can do without compromising his credibility. By the way, did he have any when he got the job?

[Lothian]

On the bright side, it should counter the calls for a rise in interest rates to combat a rise in inflation.

[Undesired Walrus]

That's weird. I asked the same 'expert' and was told 'no way!' Apparently my economic future is rosier than yours :D

Truman always desired a one armed economist, because they always said "On the one hand, but on the other hand"...

[Mashuna]

I thought I was being original. Ah well.

Never mind, I'm sure you'll find some inspiration in a pint of Yates' Best.

[stilicho]

Oh, wow. I didn't realise it was -0.5%. I thought it was just disappointing growth.

So, another quarter of this is officially another recession?

The UK is still in good form when contrasted with its EU and American counterparts. Unemployment is a good per cent or two lower and there is no foreseeable currency or bond crisis on the horizon. Footsie is up around 14% current year versus prior year.

I think we need a lot more Spanish, Ivorian, and Tunisian contributors on these economics threads.

[Undesired Walrus]

Unemployment is a good per cent or two lower

This is changing.

[Debaser]

On the bright side, it should counter the calls for a rise in interest rates to combat a rise in inflation.

But not stop the Governor of the Bank of England showing how out of touch with 'average people' he is by asking for wage restraint.

Would that be similar to the wage freeze affecting public sector workers for the next couple of years, and the one that's affected my private sector colleagues for the last three? And what about all those who have taken pay cuts in order just to keep a job?

[stilicho]

This is changing.

Looks steady for over a year now:

http://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?Symbol=gbp

What's going to change that trend (or lack of trend either way) in the short term?

[Lothian]

Looks steady for over a year now:

http://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?Symbol=gbp

What's going to change that trend (or lack of trend either way) in the short term?Despite the gvt announcement about spending cuts last year the various public sector bodies are only now starting to announce how they will manage their 25% cut in funding. The cut is phased over 3-4 years but we can expect to see the savings plans coming into effect soon. Given the main cost of these service organisations are staff that will lead to a rise in unemployment, unless the private sector compensates.

[stilicho]

Despite the gvt announcement about spending cuts last year the various public sector bodies are only now starting to announce how they will manage their 25% cut in funding. The cut is phased over 3-4 years but we can expect to see the savings plans coming into effect soon. Given the main cost of these service organisations are staff that will lead to a rise in unemployment, unless the private sector compensates.

We have to wait 3 or 4 years to see the results? Not quite the shock that's been promised. That's plenty of time for the private sector to pick up the slack. It appears that will work to protect the UK from the debt issue problems suffered by its Euro neighbours and the strength of the currency as a bonus.

Looks like win-win-win but we'll see.

[Darat]

We have to wait 3 or 4 years to see the results? Not quite the shock that's been promised. That's plenty of time for the private sector to pick up the slack. It appears that will work to protect the UK from the debt issue problems suffered by its Euro neighbours and the strength of the currency as a bonus.

Looks like win-win-win but we'll see.

No.

http://www.bbc.co.uk/news/uk-england-merseyside-12293137
http://www.bbc.co.uk/news/uk-england-manchester-12227718

And there are plenty more where that came from.

[Undesired Walrus]

I got the uncomfortable news yesterday that Brent Council are cutting 300 jobs by April!

[Francesca R]

I worked at Brent in the early 90s when it was NOC. I was a temp but still got 1 days holiday for every 9 I worked, flexi-time, overtime in excess of 35 hours at 1.5x my wage rate, and a pension (although I claimed that back after I left.) On top of that, the union reps kept on at me to join NALGO (which was the union then) because my scant employment rights would otherwise be stomped on (or because they wanted more dues). I didn't bother.

Nice perks for an 18 year old gap year student anyway.

[stilicho]

No.

http://www.bbc.co.uk/news/uk-england-merseyside-12293137
http://www.bbc.co.uk/news/uk-england-manchester-12227718

And there are plenty more where that came from.

You have to wait a couple months to see how the DEC 2010 and JAN 2011 statistics look. The most recent statistics that are complete are from NOV 2010 so a couple random recent news articles are meaningless.

The main thing from the private investment perspective is that the UK remains among the high flyers. That will have a long-term net benefit regardless of the consensus of selected articles.

[stokes234]

You have to wait a couple months to see how the DEC 2010 and JAN 2011 statistics look. The most recent statistics that are complete are from NOV 2010 so a couple random recent news articles are meaningless.

The main thing from the private investment perspective is that the UK remains among the high flyers. That will have a long-term net benefit regardless of the consensus of selected articles.

Long-term net benefit for who? I don't really care how strong the economy is if all the money is in the hands of rich investors. I don't have all that much faith in trickle-down.

[stilicho]

Long-term net benefit for who? I don't really care how strong the economy is if all the money is in the hands of rich investors. I don't have all that much faith in trickle-down.

I was explaining that the UK is probably still on the upside and that the unemployment figures are stable. I don't have much faith in trickling down either but I do think the UK is taking strong action to protect its citizens and its economy from the jolts causing various other European nations to stumble.

If, in a few weeks, the results show that all those anecdotal media reports have translated into a large increase in unemployment or a loss in investor confidence, then you might be on to something.

[megaresp]

I got the uncomfortable news yesterday that Brent Council are cutting 300 jobs by April!

Ah my own dear Council. I wait with baited breath to see what Council tax will be this year.

[Puppycow]

Put me down for the 'unemployment will rise' camp.

[Darat]

You have to wait a couple months to see how the DEC 2010 and JAN 2011 statistics look. The most recent statistics that are complete are from NOV 2010 so a couple random recent news articles are meaningless.

The main thing from the private investment perspective is that the UK remains among the high flyers. That will have a long-term net benefit regardless of the consensus of selected articles.

They are not meaningless to refute your assertion that we will need "... to wait 3 or 4 years to see the results?". We can see today some of the results of the coalition's policies i.e. massive job cuts in local government and also reduction of services. Those results are in front of us now, for example the scrapping of the 48 hour target for an appointment with your GP (NHS England), that is effecting people now. I've seen it at my own GP's practice, the quickest appointment is now back to being a week to two weeks time.

[Darat]

Put me down for the 'unemployment will rise' camp.


It has risen and according to the coalition's own predictions it is set to get higher before the miracle happens and the job fairy waves his wand.

[Puppycow]

It has risen and according to the coalition's own predictions it is set to get higher before the miracle happens and the job fairy waves his wand.

Yes, that statement was too easy.
I think will rise at least another full percentage point, probably more.

It could be argued that anything less than that would be worth it if it shrank the deficit significantly. A true deficit hawk would probably even argue that it would be worth it even if unemployment rose a lot more than that.

[stilicho]

They are not meaningless to refute your assertion that we will need "... to wait 3 or 4 years to see the results?". We can see today some of the results of the coalition's policies i.e. massive job cuts in local government and also reduction of services. Those results are in front of us now, for example the scrapping of the 48 hour target for an appointment with your GP (NHS England), that is effecting people now. I've seen it at my own GP's practice, the quickest appointment is now back to being a week to two weeks time.

What statistics are you using? I can only see those until the end of NOV 2010.

[Darat]

What statistics are you using? I can only see those until the end of NOV 2010.

I've provided you with some of the statistics in the articles I linked to as for the scrapping of the 48hr target: http://www.bbc.co.uk/news/10364566

[Puppycow]

I've provided you with some of the statistics in the articles I linked to as for the scrapping of the 48hr target: http://www.bbc.co.uk/news/10364566

Seems like there might be some good reasons for that other than saving money:
GPs have long complained the 48-hour target can put the most seriously-ill patients at risk as appointments get clogged up with people who do not need immediate access

Of course, that might be just a way to spin it.

[Darat]

Seems like there might be some good reasons for that other than saving money:


Of course, that might be just a way to spin it.

That doesn't make sense since the receptionist who makes the appointment does not conduct "triage" to assess whether you need an urgent appointment or not.

[stilicho]

I've provided you with some of the statistics in the articles I linked to as for the scrapping of the 48hr target: http://www.bbc.co.uk/news/10364566

I see. We're discussing two different things then. The FTSE index is continuously optimistic about the prospects of UK growth and has practically recovered in full from the severe crises of late 2009. Supporting this optimism is a relatively stable unemployment figure and international confidence in the currency.

[Puppycow]

New unemployment figures are out, and they are not encouraging, although the government is trying to put a happy spin on them.

http://www.bbc.co.uk/news/business-12477563

[stilicho]

New unemployment figures are out, and they are not encouraging, although the government is trying to put a happy spin on them.

http://www.bbc.co.uk/news/business-12477563

7.9% for DEC 2010 shows no change from what I'd posted earlier:

http://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?Symbol=gbp

EDIT: FTSE 100 index six-month returns are +14.42%:

http://ca.finance.yahoo.com/echarts?s=%5EFTSE#symbol=^ftse;range=6m;compare=;i ndicator=volume;charttype=area;crosshair=on;ohlcva lues=0;logscale=off;source=;

[stokes234]

http://www.guardian.co.uk/business/2011/feb/25/uk-economy-contracted-by-0-point-6-percent

Revised down to 0.6% fall, according to the guardian.

[Darat]

Good news to see that they were very close to the actual figure, but bad news because they say even taking into account "the snow" it's still a slight contraction.

[Ethan Thane Athen]

Anyone who thinks the private sector is going to create sufficient jobs to cover losses in the public sector is a tad over-optimistic IMHO and is missing the key fact that the Private Sector relies on Public Sector contracts for a lot of its income.

I had a fascinating discussion with a senior exec of a private company the other day who, despite knowing I was a public servant, went into a long diatribe about how it was about time the public sector had its funds cut etc, good on the Govt and so on. I then politely asked him what he was phoning about and he said he wanted to know if we had any new spending plans in his sector that he could help us with - supply contractors / services etc. I replied 'Er no. Our budgets have been slashed and we have to shed any contractors we have, let alone not take on any more.' It obviously didn't sink in as he asked whether it was worth phoning back in a month or so's time. When I explained the cuts covered the whole year and then increased over the next two it finally started to dawn. 'Will this be the same for other depts?' he asked to which I had to reply that other depts were actually being hit worse.

He was quite depressed by the end as all his main contracts and predicted new business was with the public sector. It's astonishing that he didn't realise these cuts would affect his business but you only have to turn the TV on to see other private sector bosses with the same blind spot.

[stilicho]

....

He was quite depressed by the end as all his main contracts and predicted new business was with the public sector. It's astonishing that he didn't realise these cuts would affect his business but you only have to turn the TV on to see other private sector bosses with the same blind spot.

I'm not surprised as Senior VPs sometimes appear crestfallen at economic turmoil. You might want to tell your friend to keep his resume up-to-date since he'll be replaced soon for not anticipating vigorous and healthy government belt-tightening.

[stilicho]

http://www.guardian.co.uk/business/2011/feb/25/uk-economy-contracted-by-0-point-6-percent

Revised down to 0.6% fall, according to the guardian.

Wait a minute! It's not even government expenditures causing the contraction in GDP growth:

Government final consumption expenditure rose by 0.7 per cent and is now 1.2 per cent higher than the fourth quarter of 2009.

(Source: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?symbol=GBP )

The languid sectors are mining, quarrying, and construction.

[Puppycow]

Revised back up to -0.5% (http://www.telegraph.co.uk/finance/economics/8413217/UK-GDP-shrinks-by-less-than-expected-reaction.html)

Question for Ukans: How much has the budget deficit been been reduced by the austerity program? Have the government's borrowing costs been improved or any other tangible benefit?

[Francesca R]

Hardly at all yet since tax rises did not kick in until Jan 2011 and cuts will mostly start happening now. Even with UK fiscal savagery, the non-cyclical government balance will remain in deficit until 2015.

[Puppycow]

Here's what I could find about the deficit:

http://www.statistics.gov.uk/cci/nugget.asp?id=206

Public sector net borrowing (excluding financial interventions) was £123.5 billion in the year to date for 2010/11, down from
£136.6 billion in the same period last year. The OBR’s Economic and Fiscal Outlook (November 2010) forecast for 2010/11 is net borrowing of £149 billion.

I wonder what it would have been under Labour though. They have managed to reduce the deficit by £13.1 billion compared to last year.

[Francesca R]

Hardly any different under Labour (based on pre-election announcements--and this has not been updated by the opposition). All three main parties promised significant and similar deficit reduction. The main difference was that Labour (or the LibDems according to their manifesto at the time) planned to do quite a bit more of it by raising tax rather that cutting spending.

http://forums.randi.org/imagehosting/127464d90d2bcaa72b.jpg

Source (http://www.ifs.org.uk/bns/bn99.pdf)

[stilicho]

Revised back up to -0.5% (http://www.telegraph.co.uk/finance/economics/8413217/UK-GDP-shrinks-by-less-than-expected-reaction.html)

Question for Ukans: How much has the budget deficit been been reduced by the austerity program? Have the government's borrowing costs been improved or any other tangible benefit?

FTSE Index virtually unchanged since the start of this thread. Inflation remains the biggest threat to recovery.

[Puppycow]

Those UK GDP Numbers? They Were Really Terrible (http://www.businessinsider.com/uk-gdp-economy-terrible-2011-4)

Earlier we noted that UK GDP came in line with expectations of 0.5%.
. . .
* Given that snow subtracted 0.5% from growth in Q4, we should expect this to ‘bounce back’ in Q1.
* In addition, some services and purchases (according to the ONS) were postponed in Q4 and should now fall into Q1. So the real minimum we are looking for is about 0.7%.
* If 0.7% would represent no real growth over two quarters, then 1.2% would show the expected bounce back from Q4 plus the economy growing at ‘an average pace’ in Q1.

[The Don]

I wonder if this is the triumph of sentiment over actual action. The austerity measures proposed by the government have yet to come into effect. Thus, the slow pace of the recovery does not really take into account the effects of an actual contraction (or at least slower growth) in government spending.

Instead it's sentiment that is keeping growth slow. Political rhetoric about cuts has been believed to such an extent that consumers simply aren't going out and spending.

In an economics-is-such-a-funny-thing-what-with-unintended-consequences-and-all the fact the government is making such a noise about spending cuts (which will likely never be made) that growth is being constrained by fear. If only the government were honest and came out and said "although we'd like to cut government spending, in truth there's not a hope in hell we'd do it successfully so don't worry too much", the recovery might be much more vigorous. As it stands, we'll end up failing on two fronts, not only will government spending not be effectively controlled (not a party political thing IMO, the other lot wouldn't be able to manage it down either) but because such a big fuss is being made, the growth won't come either - so no extra revenue.

[stilicho]

More mixed news for UK economic prospects:

The unemployment rate in the United Kingdom for the three months to March of 2011 was 7.7%.

The inflation rate in United Kingdom was last reported at 4.5 percent in April of 2011.

In the United Kingdom, business confidence declined to 9.6 in the first quarter of 2011 from 11.9 in the fourth quarter of 2010.

The FTSE has moved little since the start of the calendar year. The government still has to struggle with higher than expected inflation before a full recovery may be claimed. Business confidence has eroded as the inflation rate edged upwards.

This will require a little bit of legerdemain to pull off as the interest rate is at an historical low. Still, the anticipated shock contraction is not borne out by the statistics. The UK remains a "hold".