Hang on a mo.

Day in day out since the General Election LibCon’s resident economics pundits have been predicting an imminent second dip into recession followed by mass unemployment on an almost unimaginable scale.

The situation was so precarious, we were assured, that even to cut a paltry £6 billion in waste during this financial year would tip the economy into the vortex.

So what happened to all that, then?

I noticed that the BBC bulletins led with George Osborne in the Commons smugly announcing the success of his austerity measures.

So where’s was the:

a) deflation that justified QE?
b) the double-dip recession.

Now, you complain of low growth when any growth at all was not the considered view of yourself and the political left.

2.1% annual growth is not exactly sluggish either, it’s above historical norms and considering the sheer volume of debt both private and public, its very good.

@1

Because the austerity measures haven’t taken effect yet?

@2

Politician claims credit for coincidental good news shock.

OBR:

“The economy will continue to recover from recession, but at a slower pace than in the recoveries of the 1970s, 1980s and 1990s.”

I warned throughout 2009 that cutting spending would increase the chnaces of a double dip. I also argued that thatthe most likely outcome was sluggish growth and high unemployment.

CPI at constant tax rates (i.e. excluding the VAT changes, known as CPIY) is at 1.6%. Down from 4.7% two years ago. That’s a big drop.

Table 2:

http://www.statistics.gov.uk/pdfdir/cpi1110.pdf

Duncan,

Does the report break down whats going on by region? – i.e. are some areas still in recession whilst others grow.

6/

Sadly not – just a macro forecast. Although it does note:

“On the other, if market sector wages fail to adjust fully or if public sector employment reductions bring about significant sectoral or regional mismatch, then the risk of higher structural unemployment or lower output per head is greater.”

@5 Duncan Weldon

“The economy will continue to recover from recession, but at a slower pace than in the recoveries of the 1970s, 1980s and 1990s.”

This statement is quite misleading; We almost always come out of recession at above normal growth rates, because the number is a year number coming off a low base the previous year. The second order term (rate of change of growth) for this recession is much the same as that of the 70s, 80s and 90s recesions.

The above statement seems to be referring to a peak post recession growth rate, which were higher in the other recessions talked about.

That is also immaterial though, as we are no longer technically in recession – we’ve had 3 quarters of positive growth. Just checking my bloomberg terminal, I can pull back GDP data from 1950 – we see long term trend growth around the 2.1% area, which is exactly what we are going to be getting.

During the growth years of 1997 – 2007 the Labour governed UK barely exceeded this – not sure what justification this gives them for complaining now….?

Happy to provide the bloomberg chart (from official UK data) with all the info…..

I would also just mention that the deficit is set to be cut to zero, and might even run a surplus, and this alone will save the UK 19bn. Tha Labour plan of only halving the deficit would undoutably have forced larger cuts later, and would have incurred higher debt servicing costs – which themselves would have slowed growth.

Tyler,

This is desperate stuff.

In the early stages of recovery the economy needs to grow faster than normal to reduce unemployment (see, for example the US currently, gorwth not fast enough to reduce unemployment).

The current recovery will be slower than the last three recessions. I.e. unemployment will stay higher.

And this is all based on an export boom. How likely is that?

Tyler,

Also – growth was higher 1951-1979 than in 1979 to 1997 or indeed 1979 to 2010.

Happy to provide the data.

The “dreaded” Keynesian golden age…

What matters is the forecast now.

“Sadly not ”

Then given the massive regional differences, as a report it is a waste of electrons. It would be like writing a report on the eurozone economy, and ignoring Greece, Ireland and Portugal whilst noting germany was doing OK.

@9 and 10 Duncan Weldon

I’m not entirely sure you undertand what i’ve said above. GDP is quoted YoY, so 2.3% growth IS a return to trend BECAUSE the recession was so deep.

For the other recessions mentioned, the recession was not so deep, so the same RATE OF INCREASE of GDP growth created a higher peak YoY GDP.

You statement has essentially compared growth and rate of increase in growth as the one and the same.

How do I put a screengrab of a chart up here? At market prices you’ll find that GDP in the 50-70 only barely beats that of later decades, and that trend GDP growth is surprisingly static over the last 60 years (it’s dropped from about 2.6% in the 50-70 postwar era to about 2.1% today).

Like I said, I’m looking at a bloomberg chart (UKGRABIY INDEX for those with acess) of this….and will happily email a screengrab to anyone who wants it on here, yourself included.

Tyler,

I understand your point.

(And I’m prone to get annoyed about people misusing YOY inflation figures and not understanding base efects).

But surely the central point is this:

Because of actions taken by the govt (according to the OBR) the recovery will be slower than it otherwise would be.

This will lead to higher unemployment.

And we might save £19bn in interest (70% paid to UK citizens anyway) but the welfare bill will be higher. And the tax take lower. (Compared to not tightening as fast).

Forecasts are usually wrong, its just that there are so many of them that those that were wrong are conveniently forgotten. However and whenever this country appears to recover you can bet the lot of the average and poor people will be worse and the rich will be better off than ever and it will just stagger on till the next collapse because the fundamental economic wrong turn the country made in the late 70s has not been addressed, will not be addressed and by now probably can’t be addressed. The rich will get richer, the poor will get poorer, the middle will pay for everything and everyone will be baffled by statistics that already show a completely different picture of life to that which they experience every day

@13 Duncan

“Because of actions taken by the govt (according to the OBR) the recovery will be slower than it otherwise would be.”

Possibly, impossible to prove either way. Lots of arguments to say the opposite of you – debt and deficits drag down growth long term.

“This will lead to higher unemployment.”

Possibly. Certainly in the public sector, not as clear in the private.

“And we might save £19bn in interest (70% paid to UK citizens anyway) but the welfare bill will be higher. And the tax take lower. (Compared to not tightening as fast).”

Probably, but the payments go to pensioners and are paid out of taxes, which would need to be higher, which would slow growth. Possibly, unless reformed (which IMHO welfare really needs, given that the bill is currently much larger than total income tax reciepts), and finally possibly, but not primarily for the reason i’m sure you will give (less jobs). Higher taxes tend to bring in lower revenues.

((which Sweden is proving so well – cutting taxes and welfare payments has increased tax revenues and increased growth, via making the eocomy more competative)).

I think most of the OBR forecasts are credible and at this stage for a new institution such as the OBR credibility is crucial. One would think because they are new their bias would be to the downside for their growth forecasts. They are forecasting lower growth than the BoE forecast. However, I agree with Duncan that it is very difficult to see at this stage what would spark an investment boom. Maybe the confidence tooth fairy will sprinkle some magic confidence dust. More credibly we could loosen monetary policy.

We have known since July that the deficit was heading for around an £10 billion undershoot this year. Therefore, the LibDem argument that things were worse than expected has been shown to be drivel. Watching Danny Alexander on C4 News last evening was like car crash TV. One can only extend sympathy to Robert Chote for dealing with those political morons. Anyway, as previously warned lefties who have been banging on about a double-dip recession since the summer were only setting themselves up to look dumb. Although, the OBR predictions are only forecasts there is very little chance of a double-dip recession. Unemployment is key and if that continues to surprise then deficit reduction will be a whole lot easier.

Richard, I agree with your assessment and applaud Duncan’s article.

For me this statement from the OBR goes well beyond credulity:

“Partly as a result of the increase in VAT to 20 per cent due in January, we expect
quarter-on-quarter growth to be at its slowest at 0.3 per cent in the first quarter
of next year, picking up thereafter. As a result of this quarterly profile, we have
revised up our forecast for GDP growth this calendar year from 1.2 per cent to 1.8
per cent while revising down our forecast for 2011 from 2.3 per cent to 2.1 per
cent”

So, the VAT increase impacts only the first quarter and then everything goes back to business as usual. Optimistic or pie in the sky?