Did the double-dip recession ever happen? It looks increasingly possible that it didn’t — the BBC reports the latest revision to the data:
A revision by the Office for National Statistics (ONS) has cast doubt on the UK’s double-dip recession last year. Revised growth estimates now suggest the construction industry shrank in the first quarter of 2012, but by less than previously thought. Analysts say the revision may be enough to mean the overall economy narrowly avoided falling into recession for a second time. The ONS is due to give official confirmation of this in June.
In fact there was a double dose of good news (well, good news relative to the last five years at any rate), with the latest NIESR growth figures suggesting the UK has left recession behind with 0.8% growth in the three months to the end of April:
Our monthly estimates of GDP suggest that output grew by 0.8 per cent in the three months ending in April after growth of 0.3 per cent in the three months ending in March 2013.
Though before we get too carried away, NIESR adds:
The base effect from the weak level of output in the January 2013 has inflated the quarterly rate of growth in both the production sector and broader economy in the three months to April 2013.Underlying growth is weaker than the headline figure suggests.
Three points:
1) If (and it remains an if) the UK did avoid recession that does not mean the British economy is mended. Growth is still sluggish: it will be 2015 before the UK returns to its 2008 output levels. Crucial mistakes have been made. Labour complacently spent more than the country could afford thinking they’d abolished boom and bust. Alistair Darling then budgeted to cut the deficit by slashing capital spending in March 2010 — the most damaging possible austerity — and the Coalition followed his plans. The economy was further squeezed by lower household incomes caused by rising commodities prices and by the Eurozone crisis. (It’s worth reading Vince Cable’s New Statesman article – When the facts change, should I change my mind? – if you haven’t already.)
2) Kudos is due to The Independent’s Hamish McRae, who (as I highlighted here) last year stuck out his neck to declare that the British economy was not in recession even while the official statistics were showing it was:
It is perfectly possible that there might have been one quarter of negative growth over the past year and this may be it. But pull all the other data together and the figures would be consistent with an economy growing at around 1 per cent a year. That would be disappointingly slow. But I suppose it is understandable given what is happening across the Channel and given the debts households have to pay off.
3) And the revision was also anticipated by YouGov’s Peter Kellner in his New Year article supposedly looking back from 2016 on the reasons the Tories had won the ‘previous year’s’ general election:
Then came the moment that changed the course of the election. The Office for National Statistics produced revised figures for Britain’s gross domestic product. These showed that the economy had done better back in 2012, and started to recover earlier, than previously thought. GDP had not slipped back that year after all. There had been no double-dip recession. The cries of joy in Conservative Central Office could be heard by passers-by on Millbank. Labour’s campaign was made to look ridiculous. After that, there could be little doubt that many floating voters regarded the election more as a second referendum on Gordon Brown’s record than a first referendum on the Cameron years.
I doubt the results will be quite as dramatic as Peter Kellner speculated they might be. But it could still be a significant moment.
* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.
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17 Comments
Within a sensible margin of error the economy was flatlining with a slight trend upward
There’s an even bigger revision coming next summer: see http://blogs.ft.com/money-supply/2013/04/25/how-to-raise-growth-2014-style/ and http://www.ft.com/cms/s/0/b1e7f826-ae96-11e2-bdfd-00144feabdc0.html
“To harmonise UK national accounts with international standards set by the UN, the ONS will begin to add research and development spending to GDP rather than deducting it.”
GDP will certainly be higher (reported US GDP is about to go up by 3%), but there’s a good chance that growth under the Coalition will also be revised up.
“The reason George Osborne can smile is that the inclusion of R&D expenditure in GDP will change the shape of the recession, according to [one new paper]. While business investment slumped in the recession and thereafter, they find that business R&D expenditure held up strongly. On top of that, R&D spending was weak before the crisis, so while GDP methodological changes often just change its level over a prolonged period, this revision has the potential to increase growth after 2011 while damping it before 2007.”
Electorally, the point is though, if the economy really is recovering, are we going to allow the Tories to walk off with the credit or are we going to stick our elbows in and claim some of it for ourselves?
Also, it is going to be the right kind of recovery, where people’s living standards rise and where they overlook the pressure on benefits and public services because on balance they feel better off? This is the kind of recovery that matters in terms of votes and so far there is little sign of this materialising.
Also, now the narrative is likely to move on towards rebuilding and ensuring future prosperity, we need to be articulating uniquely Lib Dem ways of doing this, as well as sharing the resulting proceeds more fairly without splurging on benefits like Labour would.
If we are not to spend on “benefits”, we will rapidly have to find ways of strengthening trade unions or other ways of enforcing more equality on our desperately unequal population. I see no sign of our (“more or less Tory” – A. Adonis) leader trying to find ways of doing this yet.
It was reported some months back that even with the old figures, the only reason a recession was declared was because of a big drop in North Sea oil pumping. Since that has little effect on the real economy it was already clear that this was really a period of flat-lining rather than recession. The new figures just reinforce this.
So, will all the people who claimed that The Double-dip proved whatever it was they wanted to beleive be saying sorry ?
Good luck with trying to convince the electorate that actually the economic policy is working. Reduced living standards, redundancies and frozen wages have all been worth it after all! These past few years of misery have all been but a mirage created by inaccurate statistical analysis …
@Simon
“Good luck with trying to convince the electorate that actually the economic policy is working.”
The problem is that alternative economic policies appear not to be working either.
For example Francoise Hollande and the French Socialist Government (much admired by the British Labour Party) have been pursuing an alternative for the last year and it looks to be a disaster.
The problem is that alternative economic policies aren’t working either.
The issue isn’t simply about growth, it’s about establishing the fact that economic growth is impossible without economic security.
Labour removed security and introducing insecurity, creating negaitve growth of 6%. Despite pretending to voice the emotions of the vulnerable, Miliband and Balls lack any credibility on the subject.
Conservatives seek to reintroduce security but without removing the fundamental insecurity which has restricted the ability of companies to invest in the creation of opportunity. Cameron and Osborne would do much better to pay less attention to those on the extreme right-wing of their party who would place all the nation’s financial eggs in one basket.
LibDems have shown our commitment to reform in government, but we must go further to prove the creditworthiness of our position. We’ve made numerous proposals – like spending on infrastructure, expansion of apprenticeships, or the Green Investment Bank – yet we’ve been unable to build on these successes by our inferior numbers in Parliament.
If the country wants more sustainable growth we must have more LibDem MPs.
I think it’s too early to say McRae was right. As growth was (initially) -0.2% in Q1 probability always high (on past data) it might be revised over 0% (similarly to Q4, but that would haven’t change the ‘recession’ story). McRae’s claim was much bolder than that – earlier in the year he said growth was 1-5% to 2.0%, then because of some bad data he revised it to 1.0% (annualise). So to be right he’d need very large revisions, and to make his corrected assessment right reasonably large revisions (one reason I think he was over confident is he misunderstood what the ONS said was the historical size of their annual revisions to be quarterly revisions). While even this is possible his preferred measure of GDP, the Goldman Sachs Leading Indicator, showed a brief period of negative growth later in the 2012 and only modest growth before then.
Also on that Macrae piece the headline writer misunderstand McRae’s point about revisions – the economy was not 4% larger, the estimate of its size was 4% higher.
@ Matt
I think it’s too early to say McRae was right.
But if he is, then what are you going to say then, eh?
@Simon
“Good luck with trying to convince the electorate that actually the economic policy is working. Reduced living standards, redundancies and frozen wages have all been worth it after all”
Well your point would be valid if all of that could be attributed to “austerity”. As it is, most of it is due to factors outside government control like high oil, commodity and food prices, a rising workforce moderating wage claims, high household indebtedness restraining consumption, North Sea oil and gas production falling, the financial services sector contracting, the Eurozone crisis hitting exports etc. etc. etc…..
If it turns out that despite ALL of these factors, the UK economy has still managed to grow and the government has brought down the deficit at the same time (albeit not by as much as it hoped), then it is actually little short of a miracle.
@paul barker:
” will all the people, who claimed that The Double-dip proved whatever it was they wanted to believe, be saying sorry ?”
The clock has run out for the Doom-mongers. Does that make them ‘Double Dips’ ticks? 🙂
Simons point that people feel threatened by reduced living standards, redundancies and frozen wages, is an important indicator, that needs to be factored into the actual activity behind the growth figures. Just a few examples to make the point.
~ Suppose a family usually replace their car every 4 years. But you now stretch that out to 5 years. The fact that you purchased a new car this year, looks good (a plus, in economic activity terms), but masks the fact that you have ‘hunkered down’ on your own expectations of replacing your car last year.
~ Suppose the (aging), gutters and downspouts of your house have taken a battering over last winter. Replacing them is likely to be a high priority. So the money you spend on that work, is a plus, in economic activity terms, to the builder and Upvc gutter manufacturer, but construction-wise, it is nothing (in GDP terms), on the scale of new build activity.
~ Again, suppose your family take 3 holidays/breaks per year, but now you take 2 cheaper holidays, at the beginning and end of the year? Again, the purchasing of 2 holidays is a plus in terms of economic activity, but hides a family’s lowered expectations.
I suppose what I’m trying to express (probably clumsily!), is that we often read growth as ‘expansionary’, and ‘more than’ last year, when in fact the activity that we are seeing in the spreadsheets, is better explained as representing the necessary ( can’t put it off any longer! ), activities of maintenance, repair and replacement, and of a more subdued expectation. If this is the case, then any growth we are witnessing, is not growth in the usual sense we perceive it, but moreover represents a country whose total activity, effort, finances and savings, are being utilised to ‘stand still’, at best and in ‘decline avoidance’, at worst.
We’re not growing, we’re just running on the spot.
John Dunn,
even standing still is a positive compared to the pre-2008 situation.
Back then we were decieving ourselves that massively unequal rises in living standards paid for on the never-never was any sort of growth or sustainable.
The only thing you get for free is the wake-up call when the bailiffs knock on your door. Are you still asleep?
Orangepan:
You say ” even standing still is a positive compared to the pre-2008 situation.”, which is true. But if my final remark is more accurate : ‘We’re not growing, we’re just running on the spot.’, then that is a totally different state of play. Why?
Have you ever been in a gym and observed what happens when someone running at full pelt on a treadmill, (without attaching that little safety hook up), suddenly stumbles, or just stops running, at full pelt?
If we’re throwing everything we have, plus the kitchen sink, at the economy right now, just to stay in the same position on the economic treadmill, then God help us, when we get tired, stumble, or run out of ‘kitchen sinks’ and energy to throw at it.
If the coalition’s record on the economy is good, would a Lib Dem government have been worse?
The bigger issue is the growth outside the EU and the increase in competition in markets requiring a better educated workforce. A major cause of inequality is that many of the poorer people lack the education and skills to compete for many jobs. Unless the vast majority of poorer people are trained to NVQ level 3 , there will be few well paid jobs even if there is substantial economic recovery. There is inadequate thinking as to what sort of jobs will be on offer over the nest 5-10years. Germany spent the 90s reducing costs and moving most of the workforce in to jobs requiring at least NVQ Level 3 qualifications. That is why they have a 900 B euro trade surplus.
Time April 22 2013 shows how manufacturing is returning to USA due ti high cost of transport container from China to USA increased $1184 to 2302, increase in labour costs in China, innovation such as 3 D printing , European labour costs being 15-25%higher than USA plus there is low cost of gas due to Shale( good for chemical industry). However 53% of workers have at least college level education but average US manufacturing workers earn $77,060.
However, if someone only has the skills to stack shelves or flip burgers , then the future is grim.