The Great Stagnation is here

For the fourth consecutive Bank of England healthcheck of the economy,  growth has been revised downwards and inflation has been revised higher.   Both of these key UK economic metrics going in the wrong direction for the entire year of the Coalition Government.

Today Mervyn King said inflation was heading for 5% later this year on the back of a 15% rise in domestic gas prices and a 10% hike in electricity prices.   Yet more consumer pain, on top of tax rises,  cuts and economic uncertainty.   He also said the economy was in a “soft patch”.   The Bank of England also confirmed my reading of that 0.5% Q1 GDP figure.  If you abstract the snow,  you would have had 0% growth in both the Q4 2010 and Q1 figures.

But there’s something more.  What if the depressing last two quarters of UK GDP figures are not an aberration, but a taste of the new economic reality?

In an excellent analysis in this morning’s FT, Chris Giles mused that these poor anaemic rates of growth may actually be the new normal. The former Deputy Governor,  Sir John Gieve, recently suggested growth of 1 to 1.5% might be par for the course.   Our economy has been flattered by occasionally illusory growth in financial services,  that frankly put,  is not going to return.

It’s what you might call, after the Great Recession of 07- 09, “the Great Stagnation” 2010-????.

Follow Faisal Islam on Twitter: @faisalislam