Duncan Weldon
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.
Comment made by Frances Coppola on Nov 14th 2011 at 2:37 pm:
The OBR’s forecast completely ignored the deflationary effect of over-indebted households deleveraging, of course. In fact their figures suggested that household debt levels would actually increase during the lifetime of this Government. And the Government still seems firmly wedded to supply-side stimulus in the expectation that demand will respond, despite the evidence that people simply don’t want to borrow more. I suppose they can’t admit that private sector deleveraging is happening and can’t be stopped, because that would undermine the fiscal deficit reduction strategy. Attempting to cut a fiscal deficit when the private sector is deleveraging causes the economy as a whole to contract unless exports increase, which seems highly unlikely given the crisis in Europe. The Government’s own policies are therefore tipping the economy into recession.
Comment made by Paul Evans on Nov 14th 2011 at 5:38 pm:
“….their figures suggested that household debt levels would actually increase during the lifetime of this Government. And the Government still seems firmly wedded to supply-side stimulus in the expectation that demand will respond, despite the evidence that people simply don’t want to borrow more.”
They’re completely potty. Or they know something we don’t…..
Comment made by Rob Kay on Nov 14th 2011 at 8:55 pm:
I dont want to consume more, isn’t that the slippery road to everlasting hell and damnation? So surely we should all aim to consume less, but to consume smarter?
Comment made by jonathan on Nov 14th 2011 at 9:39 pm:
Unemployment is too high given the other constraints facing the economy. If there was no need to reduce debt, if there wasn’t so much uncertainty about the future of programs, funding, etc., then the level of joblessness might not matter as much. Again, the German perspective applies: you keep people employed, even at reduced hours, and you generate internal demand and internal supply. You can then work your exports. The UK would require a massive export surge, one that isn’t going to happen unless the pound were similarly devalued – and with all the disruption that entails – to overcome the combination of unemployment plus ….
Comment made by John on Nov 15th 2011 at 2:08 am:
Thankyou for this article & the comments. Work, work and demand sustainable meaningful work for ALL. Re evaluate the meaning of proper real consumerism. [Do we really need that blinkered biased marketing & advertising propaganda to tell us what we should like, but often cannot afford (but actually in truth do not really want or need?]. Seriously consider Steady State Economics. The list can go on …………….
Comment made by Scott on Nov 15th 2011 at 2:01 pm:
On that point- FDA are out on the 30th November!
If lamo Civil Service Fast Stream types like me are out then things are really bad.
Trackback made by What has happened to the rich? | ToUChstone blog: A public policy blog from the TUC on Nov 15th 2011 at 6:44 pm:
[...] Duncan’s example, I’d like to share some more charts that tell a story without too many accompanying words [...]
Comment made by gastro george on Nov 15th 2011 at 7:27 pm:
@Paul “They’re completely potty. Or they know something we don’t…..”
No. They think they know something that we don’t, but in fact they don’t.
Actually isn’t believing in fairies a sign of insanity?
Trackback made by How the super-rich have prospered across the world | Liberal Conspiracy on Nov 16th 2011 at 1:56 pm:
[...] prospered across the world by Richard Exell November 16, 2011 at 1:55 pm Following Duncan Weldon’s example, I’d like to share some graphs that tell a story without too many accompanying words [...]
Trackback made by The squeeze in living standards & the risks to the growth forecasts | ToUChstone blog: A public policy blog from the TUC on Nov 29th 2011 at 3:22 pm:
[...] The OBR is once again forecasting that private spending by households will rise faster than RHDI – something it has previously predicted and hasn’t come to pass. [...]
Trackback made by Inflation, real wages and potential economic surprises in 2012 | ToUChstone blog: A public policy blog from the TUC on Dec 16th 2011 at 2:20 pm:
[...] the past 18 months inflation has risen faster than wages causing a squeeze on real incomes which has hit consumer spending and hence depressed domestic demand. So any fall in inflation should be welcome as it should boost real incomes and hence provide a [...]