A lot of interesting newspaper articles and blog posts on the Q1 UK GDP results have been published since my post earlier today. Here are links to seven of the best, along with an excerpt from each:
Now Britain is officially in double-dip recession, and has achieved the remarkable feat of doing worse this time around than it did in the 1930s. Britain is also unique in having chosen the Big Wrong freely, facing neither pressure from bond markets nor conditions imposed by Berlin and Frankfurt.
Now, the defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence? Basically, the expansionary aspect should already have kicked in; it’s all contraction from here.
Needless to say, Cameron and Osborne insist that they will not change course, which means that Britain will continue on a death spiral of self-defeating austerity.
2. NIESR director Jonathan Portes (@jdportes on Twitter) manages to quote both Keynes and Popper in his blog post, also critical of the government: On GDP figures today, credibility, and Popperian falsifiability..
Is there a credible alternative? Of course there is. You don't have to be Keynes to think so. And you don't have to take my word for it. Ask the IMF. Or Martin Wolf at the FT. Or Ian Mulheirn at the Social Market Foundation. Or John Van Reenen at the LSE. As I said over a year ago, the real hit to credibility comes from sticking to unsustainable policies in the face of the facts.
3. BBC economics editor Stephanie Flanders (@BBCStephanie) provides a good account of the numbers, including the impact of the Q1 construction decline, in her post: No recovery for UK: No let up for ONS
Are the official numbers wrong? An impressive number of independent experts, with access to a lot less information than the ONS, are today convinced that they are. ...I don't know which is more striking, the doubts about the ONS numbers - or the supreme confidence of their critics.
4. Guardian economics editor Larry Elliott (@BusinessDesk) believes the double-dip recession affords George Osborne no escape from this reality
The coalition's fear is that the government would be punished by the markets if it went soft on austerity – and there is no obvious magic bullet for Osborne to fire. Since the recession began, the Treasury has borrowed £500bn, the pound has depreciated by 20%, interest rates have been pegged at 0.5% for more than three years, and the Bank of England has plonked £325bn of newly created money into the banking system. The result has been the weakest recovery of the past 100 years.
There are ideas knocking about. ...[but] Osborne has no Plan B and shows no sign of wanting one. He has made reduction of the budget deficit the judge and jury of Britain's performance, talking tough in the hope that the financial markets will spare Britain the harsh treatment they have meted out to the weaker members of the euro. Until now they have, but slow growth has meant progress in getting the deficit down has been much slower than the chancellor planned, and the credit rating agencies are getting jittery. Two of them have put the UK's prized AAA rating on negative watch.
A second recession hard on the heels of the first gives the (accurate) impression that the economy is a disaster area and makes a downgrade more likely.
Today’s figures conflict with at least five other findings:
- Purchasing managers surveys found a “marked expansion” in construction activity, and the strongest growth in services activity since Q2 2010.
- Official figures show that retail sales volumes rose 0.8 per cent in the quarter. Would consumers really have gone on such a spending spree of the economy was shrinking?
-The ONS reported last week that in the three months ending February, total hours worked rose by 1.4 per cent. This can only be reconciled with falling GDP either if hours fell sharply in March or if productivity has slumped.
- The NIESR estimates that GDP grew by 0.1 per cent in Q1.
- The latest British Chambers of Commerce survey found a “welcome improvement” in the economy.
6. Telegraph assistant editor Jeremy Warner (@jeremywarnerUK) argues that the Chancellor must ignore this double-dip recession
Personally, I wouldn't try to deny that fiscal consolidation is damaging growth; the more important question is whether the Government has any choice in the matter. In my view it does not. We'll never know what would have happened to interest rates had Labour won the last election and pursued a different policy, but the evidence of sharply rising spreads around the political negotiations that led up to the formation of the Coalition is that like the eurozone periphery, they might well have run out of control.
For a highly indebted economy such as the UK's, with an overgrown banking sector, this was not a risk any sensible government could have afforded to run. The banking sector, not to mention many households and businesses, would have been tipped over the edge by any significant rise in short and long term interest rates.
Stagnation in the UK economy is not the result of government policy as such, but is part of the adjustment process to the financial crisis. The idea that you should counter a crisis caused by too much debt by taking on more of it runs counter to common sense.
Judging from his speech at the Home Builders Federation (HBF) this week Grant Shapps seems to think that all he has to do is sit back and wait for all his initiatives, from FirstBuy to NewBuy, from cutting red tape to boosting self-build, from the New Homes Bonus to extending the right to buy, to pay off. ...Yet for all the rhetoric and all the new wheezes, housebuilding remains stuck at around half the level needed to meet demand and nowhere near his ‘gold standard’ of building more homes than Labour.
Relying on big housebuilders that care more about rebuilding their balance sheets than building homes will not work. A serious programme of investment in building new homes and refurbishing empty ones could be channeled through smaller firms, housing associations and local authorities and combined with reform of the housebuilding industry. That would start to generate the jobs and deliver the boost for the economy we need at the same time as tackling the housing shortage. Borrow to invest, change the borrowing rules or try something new like quantitative easing for housing. We are in a hole. It’s time to start digging.