Is the UK in recovery? Not if you look behind the topline figures

9:10 am - August 7th 2013

by Frances Coppola    

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The ONS has some good news about UK industrial production.

Here are the summary points from its statement:

  • Production output rose by 0.6% between Q1 2013 and Q2 2013. Manufacturing rose by 0.7% over the same period.
  • By far the largest contribution to the quarterly growth in production came from manufacturing, which increased by 0.7% following a decline of 0.2% in Q1 2013.
  • Looking at the broader picture, production output was 1.2% higher in June 2013 compared with June 2012, reflecting a 2.0% rise in manufacturing; 7.8% rise in water supply, sewerage & waste management; 4.4% fall in mining & quarrying; and 3.3% fall in electricity, gas steam & air conditioning.
  • Production rose by 1.1% between May 2013 and June 2013. Manufacturing rose by 1.9% with reported rises in all of its sectors. The highest contributor to the rise was the manufacturing of transport equipment, which rose by 5.3% and contributed 0.7 percentage points to the rise in manufacturing.
  • The preliminary estimate of GDP, published on 25 June 2013, contained a forecasted rise of 0.6% for production in Q2 2013. This release of data also estimates production rose by 0.6% between Q1 2013 and Q2 2013 and therefore has no impact on the previously published Q2 2013 GDP estimate.

Looks great, doesn’t it? I must admit, I was impressed


Fortunately someone was sharper than me:

It seems things aren’t quite as rosy as ONS implies. Production is actually significantly below where it was in the same quarter a year ago. The “good news” is only an improvement in one month’s figures.

But in fact it’s much worse than that. This chart from the ONS’s release shows how far UK industrial production has fallen since the financial crisis

(larger version here):

What appals me about this chart is not the collapse of production in 2007/8, awful though is, but the fall in production since 2010. Even with the upturn, total production is now below the level that it was in the 2009 recession, and manufacturing has also fallen significantly since 2011.

There must have been some kind of serious negative shock to production in 2010/11 to cause such significant falls.

I have previously argued that double-digit inflation in domestic and industrial energy prices delivered a significant supply-side shock to the economy in the last quarter of 2010 and thereafter. I suggest that this chart supports my case, although others have alternative explanations.

However, whatever the cause of the evident shock to production in 2010/11, the fact remains that UK production is way below even its 2010 level, let alone its level prior to the financial crisis. The slight upturn this month, while encouraging, is certainly not the “UK recovery” that is being trumpeted.

There must be a much more substantial and sustained rise in both manufacturing and production indices before we can really claim that that the UK economy is on the mend. There is still an awfully long way to go.

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About the author
Frances is an occasional contributor to Liberal Conspiracy. She spent 17 years of her life working at a senior level in banks, but now is a professional singer, singing teacher and image consultant. She blogs here.
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Reader comments

1. Luis Enrique

this is spot on.

first we need to see a sustained improvement, thus far we only have what could be an upward spike on a flat trend

second even if we have finally started dragging ourselves out of the pit, that doesn’t absolve the government of having left us there for so long.

2. gastro george

Dead cat bounce.

3. Baton Rouge

That was the peak in the ten-year business cycle that was. Pathetic. The trend is towards global depression. Falling spending power of the masses and the state, the bankruptcy of the entire world banking and finance system and the profiteering of the monopoly global and national corporations are sucking all the activity out of the real economy. Capitalism as a functioning mode of production is finished. We either socialise and democratise the means of production and distribution or we go back to the Dark Ages.

4. Shinsei1967

This is all obviously correct, however Industrial Production is “only” 21% of the UK economy.

It seems rather odd to discuss whether the UK economy is in recovery without discussing the single largest component of GDP, namely the service sector (78% of GDP).

And the service sector has now recovered from the financial crisis and is now larger than it was in 2008 pre-crash.

Compare this from Danny Alexander, the LibDem financial secretary to the Treasury, on 26 June at the LibDem Party conference:

When we entered Government in May 2010, we inherited from Labour an economy that was on the brink. We set out a plan to get our economy on the road to recovery by dealing with the largest deficit of our peacetime history. Three years on and the deficit is down by a third, 1.3m private sector jobs have been created, and by keeping interest rates low we have helped businesses and homeowners across the country. Over those past three years it is the Liberal Democrats who have worked in Government to deliver a stronger economy and a fairer society.

In the news today:

Vicky Redwood, chief UK economist at Capital Economics said the BoE move means rates are unlikely to rise until 2016 or even later.

“The Committee does not intend to raise interest rates until unemployment falls below 7%. Admittedly this is not too far below the current unemployment rate of 7.8%,” she said.

“But the MPC sees scope for a period of strong GDP growth driven by a rebound in productivity growth. So its forecasts published today show that it does not expect unemployment to drop below 7% until after the end of the forecast horizon (i.e. after Q3 2016). So this is a clear steer that interest rates will stay on hold until the end of 2016 or even 2017.” [Guardian website 7 August 2013]

More about the pace of the recovery in today’s news:

“Mark Carney, who took over as governor just over a month ago, said a recovery in Britain’s economy was underway and appeared to be broadening but had a long way to go.

“We’re not at escape velocity right now,” he said at his first BoE news conference. “This remains the slowest recovery in output on record.”

Now that the extent of the recovery of Britain’s economy has been definitively cleared up by Mark Carney, the new Governor of the Bank of England, it’s time to sort out the culture of the high street banks:

Mr King urges high street banks to take a better, longer term view towards their customers and to stop focusing on the need to “simply maximise profits next week”.

He accuses them of routinely exploiting their millions of customers. “If it’s possible [for financial services firms] to make money out of gullible or unsuspecting customers, particularly institutional customers, [they think] that is perfectly acceptable,” he says. [Telegraph 4 March 2011]

And Carney in Thursday’s press:

“I think finance can absolutely play a socially useful and an economically useful function but what it needs in order to do so, the focus has to be, of the financier, the people working in the banking system, has to be on the real economy, what it does for businesses making investment, what ultimately it means for jobs in the economy.

“And it’s the loss of that focus, it’s finance that becomes disconnected from the economy, from society, finance that only talks to itself and deals with each other, that becomes socially useless.”

He also stressed that the attitude within the sector that leads to mis-selling of banking products to customers to turn a profit undermined the effectiveness of banks.

Asked whether people working for banks should sell a product to a customer to make a profit, even if they knew the product was bad for the customer, Mr Carney said: “Absolutely you shouldn’t sell it…

“It’s that attitude in institutions that undercuts their effectiveness, is bad for the system, and to the extent that with our powers we can use them, we work to snuff them out.”

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