I’ve noted previously that it is very hard indeed to blame the UK’s slowdown over the past year on the Eurozone’s continuing crisis – our export performance has actually been pretty reasonable, what we’ve seen is a collapse in domestic demand as household income is squeezed and austerity begins to bite.
My colleague Richard has written about how bad the consumption numbers have actually been in recent quarters and a quick look at the most recent round up of independent forecasters views on the UK economy reveals that it is this that has been a the real driver of our stagnation. Back in March the OBR expected private consumption to contribute 0.6% to overall growth in 2011 (around one third of the total), whilst the median estimate of independent economists is now for it to subtract 1.0% from growth.
The squeeze on living standards has been larger than the OBR anticipated and households simply haven’t borrowed to plug the gap and maintain their spending.
They say a picture is worth a thousand words and in the case of the chart below I’m inclined to agree.