NIESR’s latest GDP forecasts make for grim reading.
They think that the double-dip recession continued into the second quarter with GDP down by another 0.2% quarter-on-quarter.
Their regular chart of comparative recoveries shows the extent of the problem:
This is the weakest recovery, and the longest slump, in modern British economic history.
More than four years after the crash, output is still about 4% below its pre-recession peak. By contrast, at this point in the 1930s depression the economy was about 2% above its pre-recession level.
Where on Earth is the demand going to come from to drive the economy forward?
Looking at the expenditure components of GDP it’s hard to be optimistic at the moment.
- Household consumption is being held back by an unprecedented squeeze on living standards – even falling inflation is failing to offer much relief as wage grow remains subdued.
- Our export prospects are being impacted by events across the Channel. 50% of our exports still go to Europe, and a quick glance at the economic news there doesn’t offer many grounds for hope.
- The government is committed to its austerity programme.
- Against a backdrop of falling domestic and external demand it’s hard to see why firms would choose to increase their own investment spending. Especially when credit remains tight.
Sir Mervyn King recently commented that we were not even half way through the crisis, on these number it looks like he might be right. We face a decade of lost growth and a decade of lost living standards and as long as this continues the deficit will stubbornly refuse to fall as the Government hopes.