Pulling the snow over our eyes?
Hurrah! Through dextrous economic manoeuvring the Coalition has deftly avoided the dreaded double dip. Just the tonic in this joyous week of national celebration? Right?
Well, the economy is not growing. It has been totally stagnant since the end of September. As the ONS chief economist has just told me, the 0.5% growth number announced today for the first quarter, would be zero, were it not for the snow. If you take away the snow, you have an economy on a perfectly flat plateau.
0.5% is merely the arithmetic bounceback from the temporary snow-based shrinkage in the economy in the final quarter of 2010. A true Lord of Doom could point out that the size of the UK economy is almost certainly very marginally smaller today than it was at the end of September. The numbers for that will be revealed in the second reading on q1 next month. But for any meaningful statistical purpose it is flat.
Keen observers of the Chancellor will however note that as Shadow Chancellor, George Osborne responded to a +0.1% figure for Q4 09 under Brown/Darling in the following manner: “Let’s be clear – this is about as weak growth as you can get”. Despite the brave face put on the numbers this morning, I’m pretty sure they will have disappointed, though not as much as last quarter’s.
What matters in a time of snow-distorted GDP growth figures is a cursory glance at measures of the size of the economy. If you set the size of the UK economy in 2006 at 100, then in Q3 it was 99.6, Q4, 99.1, and Q1, back up to 99.6.
If as the Government and the ONS claimed, the drop to 99.1 was merely a temporary impact caused by the snow, then you would expect it to return to 99.6, giving you “growth” of 0.5%, that is basically arithmetic. Simply put, if the Government uses the snow as an excuse for all of the -0.5% in Q4, it cannot really claim +0.5% as real growth. It is as arithmetically anomalous as the negative figure in Q4.
On top of that you should also be seeing that snowed-off production from Q4 reappearing too. Basically, it has not, in net terms. There was some in transport and services, but construction for example not just failed to bounce back, but has freefallen further, -4.7% in Q1 versus -2.3% in Q4.
The one shining light here is manufacturing, which was up 1.1% in Q1. Finally the sterling effect may be doing some good, and helping rebalance the economy. The soft numbers also mean that the Bank of England can also hold off on the rate rises for another few months.
But is this economic performance really enough for the Chancellor to be telling the Cabinet that the “economy is on the right track”? Was that really his assessment, after having seen these numbers yesterday? Remember these numbers don’t take into account the very recent consumer surrender, nor the inevitably negative impact of an extra Bank Holiday and half of Britain having a second Christmas. Today it appears like that the UK locomotive is languidly trundling on some slow moving narrow guage rather than the high speed line.
Follow Faisal Islam on Twitter @faisalislam