Thursday, 27 January 2011
Should we be worried about the last quarter’s growth figures?
The ONS on Tuesday released their first estimates for growth in the last quarter which shockingly revealed that the economy has contracted by 0.5%. This was definitely not expected, predictions were for growth in this quarter of 0.2% - 0.6%.
Osborne was quick to point out that bad weather over Christmas will have hurt the economy with people unable to get to the shops to spend those Christmas pounds. When challenged on whether he would rethink his swinging cuts, that will leave a million more people out of work, in light of this poor economic performance he said ‘
"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."
So should we rest easy in our beds, happy in the knowledge that as long as there is no more snow, Britain will continue limping its way back to prosperity and growth? Unfortunately it is not that simple. The ONS said that even without the effects of the snow growth would have been flat, which would still make it worse than predicted. This message seems to have filtered into the Tory Government’s consciousness overnight, as yesterday David Cameron at prime minister’s question time was playing down the effect of the snow. He instead said:
"Inevitably, as you recover from those things it will be choppy and it will be difficult, but the worst thing to do would be to ditch your plans on the basis of one quarter's figures."
So Cameron rather than blaming the snow is seeing this as part of the rocky road to economic recovery. But is it fair to look at these figures as just representing one quarter and therefore dismiss them as a blip? Or should we be seeing it as a sign of things to come?
Well in my view the answer is, as is inevitable in life, somewhere in the middle.
On the one hand it is true that these figures are simply for one quarter and are in fact early estimates from the ONS which will be subject to revision. Of course this means that they could be worse, but equally they could be better. So it might not be as bad as we think and even if it is, it does not necessarily mean that we will see negative growth in the future.
But this figure is still significant.
The UK government outlined its spending cuts in the comprehensive spending review and many public sector bodies have begun to implement them but these cuts will not really begin to bite until the new financial year. This means the danger of falling back into recession (ie. two consecutive quarters of negative growth) is much greater in quarter 2 and quarter 3 of this year, than it was in the previous quarter.
The fact that we are already seeing negative growth is, therefore, extremely worrying.
The Better Way Campaign has long argued that the Government should be prioritising growth and jobs to secure the recovery. Falling back into recession is the last thing this country needs, and Osborne will even struggle to meet his primary goal of reducing the deficit if this happens.
To date the recovery has been slow and growth figures have been very low. The best that the Chancellor can hope for if he continues with his spending cuts is low growth, and the negative figure in the last quarter tells us that there is a very real possibility he won’t even achieve that.
Helen Martin- STUC