UK GDP: don't panic, yet!

The latest UK GDP figures for the first quarter of this year revealing a fall of -0.2% should not lead to panic. Yes, we are now in technical recession after a fall of -0.3% in the final quarter of last year. The latest change is largely driven by Construction with Services contributing positively to growth and Manufacturing neither contributing positively or negatively. Production made a small negative contribution but this was due exclusively to a fall in Mining and Quarrying output of -3.6% due largely to the fall in oil and gas extraction. The contribution of broad sectors is shown in this chart:

The latest GDP data from the ONS are likely to be revised upwards because they reveal a much weaker picture than revealed by UK business surveys. The latest PMI construction surveys stand in marked contrast to the ONS data as this chart shows:

Business surveys generally appear to suggest that the slowdown noted at the end of last year is beginning to turn round see here, here and here. We should see some positive growth in the second quarter.

But it is going to be a hard slog.

None of this detracts from my view that we are enduring a weak recovery largely because of the UK Government's austerity programme. Gavyn Davies' recent FT blog charts the weakness of the UK recovery against the other G7 countries and the contrast is quite marked see chart:

Source: Gavyn Davies

He is more sanguine that the current UK policy mix favouring a much looser monetary and exchange rate policy than elsewhere but tighter fiscal policy may start to generate growth dividends in the future. I am much less sanguine because with interest rates close to zero - the zero bound - monetary policy effects on demand and growth are much weaker than in normal times.

In the meantime, UK GDP now stands at 4.3% below its pre- (2008) recession peak, austerity continues and the situation in the Eurozone has worsened again.

Comments

[Ian Jenkins]

"my view that we are enduring a weak recovery largely because of the UK Government's austerity programme"

On future growth, the Washington government and the IMF seem to be hoping for compelling advocacy from Europe for a more gradual approach to cutting eurozone budget deficits and a greater emphasis on economic growth - according to the blog of the BBC's Economics Editor, Stephanie Flanders. Other BBC notables Robert Peston and Paul Mason point out that for the moment most politicians in the UK are wedded to a conventional pro-globalisation stance, and whoever is the next president of France will be a prisoner of the global market; therefore if we want to break with austerity, we have to explain where the money to finance the continued social model is going to come from. .......