Official: since the spending review, a shrinking economy (just).
I’ve spent the day buried in spreadsheets and statistics looking at insights for our Channel 4 Jobs Report. In the course of that I got a closer look at the GDP numbers released as part of the Quarterly National Accounts a fortnight ago.
I was in Spain at the time, but still managed to show that Britain’s economy hasn’t grown since Q3 2010. Zero growth in five quarters since around the time of the government’s spending review, in a period when, for context, the coalition’s original (June 2010) deficit reduction plan assumed a whopping 3 per cent points of growth. Zero vs 3 was not very good.
Well, how about this as part of my day of spreadsheet-mania? It appears that not only was the economy not bigger, it was actually officially smaller. Over 15 months the official measure shows quarterly GDP is £132m smaller or -0.04 per cent. It rounds up to zero at one decimal point, but it is undeniably negative. It is the official measure of GDP, known as ABMI, or gross domestic product at market prices (chained), and in Q3 2010 it was £352,552m, and in the latest quarter, Q4 2011 it was £352,420m.
All this data is from the supplementary tables C2 on the byzantine ONS website. It’s on a tab in this Excel spreadsheet.
It’s plausible that in judging the economic performance of the coalition, you give them Q2 2010 too. In that case, since the chancellor walked into Number 11, the economy has grown 0.6 per cent (0.64 oer cent precisely) in the six quarters since the coalition won the election. For context, the OBR forecast we should have seen 3.6 per cent growth during that time when the deficit reduction plan was launched in June 2010. So a rather different state of the world.
But the spreadsheet fun does not stop there. Table C2 breaks down the contributions to these GDP levels. It gives a pretty clear picture of what is going wrong in the UK economy. Almost all the weakness over that period has been in the domestic economy. Here I must credit my producer Neil Macdonald.
The domestic sector of the economy has shrunk by 0.8 per cent under the coalition (0.76 per cent precisely over six quarters, since Q2 2010) but this is NOT driven by cuts in government spending. It is generalised weakness in the UK domestic economy.
What has undoubtedly saved the day and left the economy growing, just about, has been the performance and net trade, where strong exports have been up 5.47 per cent, more than making up for a strong rise in imports of 2.95 per cent. Significantly the exports measure jumped by about £1.5bn in Q4 2011, the peak of the euro crisis. Given that, it does seem difficult to blame our current malaise on the international economy. Perhaps you could argue that the rapid export growth would have been even higher.
And this is where it gets a little strange. The 0.64 per cent growth that we have seen in Britain since the coalition came to power corresponds to an increase in the level of GDP of £2.246bn between Q2 2010 and Q4 2011. Now have a look at the column below I have highlighted in red. That goes from subtracting £1.4bn (“-1 388”) from Q2 2010 GDP, to adding £1.2bn to Q4 2011 (“1 186”). That’s a swing of £2.574bn. Effectively it adds £2.574bn to GDP since the coalition came to power. What is this mighty new growth industry contributing to our economy, you might ask? It is something called “statistical discrepancy”. And without it the UK economy would be smaller now than the coalition inheritance.
What does this prove? Not that we are in a secret recession. But that the economy is totally flat and has possibly got a little smaller since the spending review, and that it might not have grown (even the tiny amount it has) and instead shrank a little under the coalition without the help of a statistical discrepancy. There’s undoubtedly a deep-cover technical explanation for this, but let’s just say the economy is pretty flat.
What does it say about the deficit denial versus growth denial debate? Well the Adam Smith Institute responded to my earlier calculation of zero growth by saying it showed the case for more cuts. Clearly those on the left might argue the cuts have gone too far. Well, we haven’t really had the cuts so far, which suggests the drag on growth will remain. At a guess the VAT rise is looking like a possible culprit. Both left and right might find a way to agree with that, though not the Government.
Now hopefully all this will stop when the Q1 numbers emerge in a fortnight. I have been far more positive on them than, for example the OECD, which predicted they will show the UK in recession. However Alan Clarke, UK economist at Scotiabank, points to a potential horror story from tomorrow’s UK construction output data, that might even suggest that Q1 will be negative, confirming a recession. Friday 13th, it is.
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