The economy has been artificially propped up since 2008. Adjustment is necessary and that adjustment is going to be painful. It would have been better if Osborne had been more honest about this to begin with.

“Strongly suspect Labour in office would be rethinking tough cuts in 2011 at this point.”

That’s because they put off cuts for years, scared of the effect on their popularity. No surprise if they put them off again. The sooner we deal with the mess, the better. You can’t just put it off forever.

Richard,

Stagflation is a combination of negative impacts on the economy, not a mere adjustment.

The number was awful. However, it is probably worthwhile pointing out that the provisional estimate is almost entirely a guess by the ONS for what they think happened in December. They never have hard data for the last month of the quarter. They are implying a 1.8% decline for December, even allowing for the major snow disruption that seems a bit on the high side to me. Without the weather disruption the picture is of a flat to modest growth economy bouncing along the bottom. Not an economy that one would want to hit with tax rises.

GDP in the recession and recovery is following almost exactly the same trajectory as the early 1980s recession and recovery. Lots to be bearish about but being a contrarian is harder and if the trajectory continues on the same path there should not be a double-dip recession. What we should expect is a big pick up in growth Q1- modest to flat Q2 and Q3 and a large acceleration Q4.

At least the public borrowing figures were goodish and the deficit should undershoot.

3 – I might be wrong and this might not be the adjustment I’m thinking of. However flooding an economy with money to prop it up, no matter how successful in the short term, is going to have consequences. Stagflation is often a result of the adjustment being unable to complete itself.

Richard W,

You say,

“Lots to be bearish about but being a contrarian is harder and if the trajectory continues on the same path there should not be a double-dip recession. What we should expect is a big pick up in growth Q1- modest to flat Q2 and Q3 and a large acceleration Q4″

I think you under-estimate the impacts of the VAT, imported inflation due to a weak pound and hope for a quick resolution for the Euro zone crisis, a favourable outcome of the China/US currency disputes, a non protectionists world market to promote the business miracle the Tory led coalition dreams of. My odds for a Lotto win start looking better.

Behave. Time lags are time lags. Politics & economics work on different cycles – ‘trust the force, Luke’.

Did you see our little Pip squeak chancellor grinning like a moron and blaming the weather? “it’s the weather, it’s the weather, nothing to do with me gov”

We are all in this together, well apparently not if you can’t fit in a Range rover and get to the shops.

I think if anything, our economic situation should be contrasted with Ireland.

The bubble of their real estate market is something memorable to behold. Went over to Dublin for the rugby world cup and there were crains everywhere and on the Saturday morning about 8am we were wandering home and the queue around the immingration office was at least 1,500 deep – at that time in the morning! Best bud lives in Croydon and never seen anything like that.

Bono has made over $500 million as hedge fund owner investing in Facebook. He owns the most swankies hotel in Dublin. Coca Cola were to build a tower on a match with Kuala Lumpur in the middle of fucking Dublin. I had to stay on a B&B’s gin soaked grannies front room floor and she said her dump was worth 350,000 eurors. They went mad.

Sorry, bit OT.

I used bad weather as an excuse for being late for work once – they didn’t believe me.
But using the weather as an excuse for our crumbling economy caused by this ideological austerity program is just a cruel joke.

The problem is the way that the Tories (let’s forget the Lib Dems on this, they were right before the election, but sold their souls for an AV referendum that will be lost) think that the government’s accounts are more important than the national economy.

So, we sacrifice growth (which makes deficit reduction easier over time) because they are desperate to cut spending. The taxes they increase have a direct effect on the economy, and add to inflation.

An extra couple of percent on GDP by the end of 2012 would make a lot of difference, not only to the government’s deficit, but the livelihoods of millions of Britons. Unfortunately, Osborne and co don’t give a stuff about them, and there are plenty of people who will egg this government on.

1. Richard

The economy has been artificially propped up since 2008. Adjustment is necessary and that adjustment is going to be painful.

There probably is need for adjustmenmt, but not the one Richard proposes. Any adjustment involves reigning in the banks, using government spending to grow our way out of the crisis the banks induced and investing in skills and green technologies.

Taking the real hard decisions in other words and not the easy ones glorified by the rightwing press.

We can choose to grow our way out of this private sector induced crisis while minimising the impact on the British people.

Frankly, self flagellation is for nutters.

All is not lost all we have to do is look across the Irish sea to that shining example of what a defecit reduction program can achieve?

Maybe the Tory led government need to get Nick Cleggs eight year old in for an economics lesson?

There are a couple of weirdies in the forecast. Agricultural income increases despite nasty weather and poor crops. Some of the increase can be attributed to higher prices for grain or substitutes; and carrots are crap so we pay more for decent carrots, eating fewer of them.

Retail income allegedly plummets. Weather may prevent us from shopping for Christmas presents, but we are going to buy our festive feast, irrespective of the weather. Some food will cost more than last year.

Food cost at Christmas is high. Children’s presents are expensive. Parent compromise is to have a cheaper present Christmas and a stuffing celebration.

So if agriculture costs had not risen so much, retailers might have earned a smidge more?

skooter @ 13:

“All is not lost all we have to do is look across the Irish sea to that shining example of what a defecit reduction program can achieve”

Ireland is locked into the Euro, so it cannnot devalue. As it cannot devalue externally, it will have to devalue internally, so the consequences of a deficit reduction programme will be much more severe in Ireland (or any other Euro economy) than in the UK. Thank God, Gordon Brown kept us out of the Euro!

@15 Paul

Were not Greece et al all in a similar position yet the Gvmnt selectively compared our economy to theirs when it suited them? I hope my sarcasm did not get lost in the subtelty of my prose lol

@ Duncan Weldon

Never let the facts get in the way of a good headline?

http://www.spectator.co.uk/coffeehouse/6646203/what-to-make-of-the-gdp-fall.thtml

Given that cuts haven’t started yet and nor have VAT hikes, this drop in GDP cannot be due to them. As the above link descirbes, Government spending has actually increased singificantly in Q4. By your logic, that should have a boon to GDP.

Though I know your argument will simply be that there should be *even more* spending now…but then, you never consider whoo is going to finance that debt, who government borrowing displaces form captial markets, how that debt affects growth and how debt is financed and will be repaid. For you, debt and deficit spending is eeffectively synonymous with growth.

17/

Tyler please point to the bit in the post where I argue that the Q4 number was weak because of cuts?

As an aside I thing arguing that GDP was falling before you even started to cut won’t help you…

It’s unwise to focus on the initial negative estimates of GDP growth in just one quarter but there are enough other worrying issues about the economy:

- the scale of youth unemployment: “Last week’s labour market figures revealed that close to one million 16 to 24-year-olds are out of work, the highest total since these statistics were first recorded.”
http://www.telegraph.co.uk/comment/telegraph-view/8277835/Work-in-progress.html

- no evidence of sufficient new private sector jobs coming on stream to replace those DUE to be lost in the public sector as the spending cuts bite: “One in five UK university leavers who entered the labour market failed to find a job last year, as graduate unemployment reached its highest level since 1995, government figures show”
http://www.bbc.co.uk/news/education-12286264

- no agreement between the government and the banks on their scale of lending to small and medium sized enterprises (SMEs) which together provide about half of all business jobs: “Bank talks stuck in deadlock on lending”
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8276321/Bank-talks-stuck-in-deadlock-on-lending.html

@ Duncan

Your headline for the article says it all…..and I’d love to know what you think should be cut, and if taxes were to be raised why hat itself wouldn’ drag down growth. I’d also like to know what you think the effect of increasing debt financing costs do to an economy

((hint: debt/gdp above 90% tends to reduce gdp growth by about 1% annually, and with the Darling plan debt/gbp hits approx 70% by the end of this parliament and exceeds 90% in the next. makes it rather hard to growth your way out of debt if it increasing faster than your growth, doesn’t it?))

Tyler @20

Right – the point of the headline is that the economy is in no shape to absord the cuts.

Taxes vs spending – look at multipliers. Lower on tax rises than spending – according to the OBR!

Your final point there – please cite studies showing this rather than asserting.

I’d highly recommend reading the whole of chapter 3 of the IMF’s October WEO. Great discussion on these very points.

Finally -(pasting from a previous response to you!):

I’d actually favour a short term additional stimulus focussed on public investment now and a long term promise of fiscal consolidation (not a vague one but with cuts and tax rises identifed). Much as Roubini is arguing for.

Let’s take the structural deficit as about 7% of GDP and say that can’t be closed by growth alone.

So I’d be looking at programme of cutting public spending by 3.5% of GDP and raising taxes by the same amount, dependent on growth (and in particular business investment growth) as growth (and especially business investment) increases.

That comes out as about 10% off each departmental budget over the next 5/6 yrs. Tough but do-able.

Not much seems to be going right for the coalition’s economic strategy:

Try this from the recently published BoE report on trends in lending: [Executive summary] “The stock of lending to UK businesses fell in the three months to November. The stock of lending to small and medium-sized businesses continued to contract, but syndicated lending facilities to UK businesses increased. . . ”
http://www.bankofengland.co.uk/publications/other/monetary/TrendsJanuary11.pdf

The government is hoping for a boost to demand from exports to create more of those private sector jobs. Sure enough, exports have been increasing but imports have been increasing even faster – the latest on the monthly Trade Balance figures from the ONS: the monthly deficit has increased to £4.1bn:
http://www.statistics.gov.uk/cci/nugget.asp?id=199