While the Leveson Inquiry rumbles on, spare a thought for the poor old UK economy. Figures released today tell a sorry tale of economic woe, with negative growth of 0.2 in the first quarter of 2011. While these figures are subject to official revision, it is unlikely that revised figures will show growth, hence the UK can now officially be declared in recession with little prospect of a return to growth in the near future.
For three out of the last six quarters the UK has been shrinking – even during the upturns, growth has been well below the level required to prevent further unemployment and business closures. Indeed, unemployment will continue to rise long after any upturn kicks in – when and if it arrives. The ‘double-dip’ recession is the first since the 1970s, when strikes, oil shocks and the 3-day week combined to end the long period of uninterrupted post-war growth and prosperity.
Despite some good news on trade, export growth is unlikely to compensate for falling confidence and stalled consumer spending, combined with the contractionary effects of a shrinking public sector and very weak construction and production sectors, which fell by 3% and 0.4% respectively. A decline in mining and quarrying activity contributed most to the fall in production, followed by manufacturing. However, it is the construction sector that represents the biggest downward driver, with many publicly funded infrastructure projects put on hold, or shelved completely. Running underneath these figures is a more worrying four-quarter decline in investment spending – an inevitable by-product of falling demand, but a clear indicator that when any upturn comes inflationary pressure will quickly gather steam as firms will face capacity pressures.
Chancellor Osborne was again forced to defend his deficit reduction strategy stressing that he remained committed to re-balancing the economy in the medium term and stressing that long term prospects depend ultimately on improving competitiveness in global markets. Of course, the alternative view is that it is precisely at times of recession that strong leadership and vision is required – especially in terms of government spending – a bit more debt now, which can help prime-the-pump for growth, may lead to much less debt in the future and, perhaps, a better infrastructure as a lasting legacy.