From the TUC

Been down so long, feels like up to me

10 Oct 2011, by in Economics

A new recession is starting to look more likely than not. Today, the GMB pointed out that the number of jobs lost in local authorities since the general election has passed the 100,000 mark and the CIPD reports that 610,000 public sector jobs are likely to  be lost by 2016 – two hundred thousand more than the forecast from the Office for Budget Responsibility.

Last week, I reported that two-thirds of managers think a double-dip recession is likely and now a survey of finance directors finds 43% of them thinking along the same lines. I think they’re probably right. Look at the GDP figures : over the past 9 months net growth is 0%, and the results for the past two quarters have had to be revised downwards. But look at the figures in more detail: GDP is only being held up by government spending, which in the last quarter rose by the largest amount since the start of 2008. The contribution to GDP growth made by government spending has increased in the first quarter of this year, rising from nothing at the end of 2010, to 0.2 percentage points in the first quarter of 2011 and 0.3 in the second:

If the government sticks to Plan A and continues to make cuts this contribution is very likely to fall; if that had happened in the most recent quarter we would already have declining GDP.

Business investment isn’t growing as fast as expected: year on year growth in the latest quarter was 3.8%, well down on the OBR forecast of 6.7%.

But for me, the killer is the picture for household spending. This accounts for more than 60% of GDP (measured by expenditure) and it is here that the data most clearly show a double dip:

This looks pretty terrible: household spending is plummeting, business investment is disappointing and the government is doing its best to cut government expenditure. (Oh, and by the way, look at the table, trade isn’t about to save our bacon.)

Quantative Easing will have to work pretty damn quickly or a double-dip recession looks very likely.

5 Responses to Been down so long, feels like up to me

  1. Dan Sutton
    Oct 11th 2011, 9:39 am

    I think whether or not a second recession happens or is narrowly avoided is not the really big question. After all most recessions since 1900 have been double dip (with the exception of the 1929-31 recession.

    The real question is how long will we have growth that averages close to zero or close to 1%?

  2. Is rising unemployment a result of the ‘international economic crisis’? | ToUChstone blog: A public policy blog from the TUC
    Oct 12th 2011, 12:06 pm

    […] poor jobs data is also a result of falling household spending which accounts for around 60 per cent of GDP and is being squeezed by high inflation, a concequence […]

  3. This doesn’t feel like a recovery | ToUChstone blog: A public policy blog from the TUC
    Oct 18th 2011, 2:16 pm

    […] Household consumption has fallen for the past four quarters. […]

  4. What impacts are spending cuts having for growth? | ToUChstone blog: A public policy blog from the TUC
    Oct 25th 2011, 5:26 pm

    […] the impact of spending reductions on the economy and that cuts are leading to falls in consumer and business confidence, reductions in real household incomes (as the public sector wage freeze, tax credit cuts, benefit […]

  5. UK Consumption: One picture is worth one thousand words | ToUChstone blog: A public policy blog from the TUC
    Nov 14th 2011, 3:59 pm

    […] 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 […]