Lessons from the latest growth figures
Once again, the consensus has been consigned to the dustbin. We knew that the growth rate in last quarter of 2010 would be harder than usual to get right: as it turned out, none of the leading City economists even came close. The lowest forecast was growth of 0.2% - instead the first estimate is for a contraction of 0.5%.
As Joe Grice, the chief economist at the ONS points out, this figure needs to be treated with even more caution than usual - thanks to the weather. He reckons that, without the bad weather, we'd be looking at a figure of 0.0%: no contraction, but no growth either. But even that calculation must surely come with a lot of health warnings attached.
As I noted at the time, the fact that the bad snow came so close to Christmas meant there was a quite a strong possibility that the short-term loss in sales on the High Street - and online - would not be recouped. If you don't buy a Christmas present before December 25th, there's a fairly good chance you won't buy it at all.
What are the broad lessons of these figures?
One is that the "two speed recovery" is even more pronounced than we thought. Output in the production industries increased 0.9% in the fourth quarter - leaving output in this part of the economy 3.6% up on the year. Output in the service sector, by contrast, fell by 0.5%. The ONS estimates that most of the impact of the snow was to services; without the snow, services output would have been 0.1% lower - in other words, broadly flat.
Long-term, it is good news that manufacturing and the like are strengthening, relative to the service sector. It is also, incidentally, good news that the pound has fallen in response to today's figures. The recent rise in sterling, on the expectation of rate rises, has not been welcome at all. But, you can definitely have too much of a good thing, too quickly. Services still account for the lion's share of Britain's economic activity, and this recovery won't get far without them.
The second is that everyone - and it has been nearly everyone - is right to worry about where Britain's growth is going to come from in 2011, especially now that higher than expected inflation has a dealt a further blow to household budgets. As I mentioned in my last post, real household income in the UK at the end of 2010 was lower than it was 5 years ago. And there will now be further hits in 2011 from rising prices, higher VAT and real pay cuts and job losses and in the public sector.
Usually, we would expect a strong bounceback in the first three months of 2011, just as the economy bounced back after the bad weather in the first quarter of 2010. But that assumes that households hold on to their spending plans, despite all the bad news on VAT and prices. You have to wonder whether they will instead seek to cut back.
Finally, we are reminded, not for the first time, that these quarterly figures can and will bounce about a lot in the early months of the recovery. Just as it would have been foolish to break out the champagne after that surprising 1.1% growth figure for the second quarter of last year - no-one should be writing any obituaries for Britain's recovery on the back of today's news. But Mr Osborne has said they are very disappointing - and that they certainly are.
Update 1217:The opposing camps at Westminster have naturally rushed to offer their take on today's figures. Ed Balls, for one, can't resist pointing out that the quarterly growth had slowed sharply since Labour left office. But he can't seem to decide whether these figures are the government's fault.
Initially, it seems that they are not to blame. The statement put out by the shadow chancellor's office says that the fourth quarter figures "are all the more worrying because they cover the period before the government's VAT rise and sharp public spending cuts have even begun". That seems right: the construction sector may have been affected by the sharp slowdown in public investment, but overall, the coalition's modest additional spending cuts for 2010-11 will not have had a large impact on these numbers (indeed, we had that surge in public spending in November).
But, later, Mr Balls asserts that "now we are seeing the first signs of what the Conservative-led government's decisions are having on the economy". He does not seem to be able to decide whether the economy is weak as a result of the coalition's decisions, or in anticipation of them.
Sources close to Mr Osborne naturally wish to stress the provisional nature of the figures, and the impact of the weather. More interestingly, perhaps, they say we should be encouraged by what's been happening to the the claimant count, and to tax receipts. According to the Treasury, each of those has provided useful early warning, in the past, that something was going seriously wrong with the economy.
The claimant count actually fell very slightly in December, and tax receipts throughout the quarter came in almost exactly in line with the official forecasts - which, in turn, were based on the OBR's forecast of modest growth. That is not something you often observe in a shrinking economy.
There's been some support for this assessment from independent commentators - though remember they are the ones trying to explain why their forecasts were so wrong.
This is what Nida Ali, economic adviser to the Ernst & Young ITEM Club, had to say about today's public finance figures:
"Tax receipts seem to be growing nicely and it's interesting to see that VAT receipts were up almost 9% on last December. Though part of this reflects the higher VAT rate (17.5% against 15%), it also suggests greater consumer activity in December than other sources have reported."
~RS~q~RS~~RS~z~RS~47~RS~)
I'm 
© MMXI
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Two weeks of snow isn't going to have that much effect on a whole quarters growth...Blaming the weather simply isn't good enough.
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Lessons?
It's too late for lessons - the lessons were all in the 1930's!!! It's just that the media, Government and Economists 'chose' to ignore them.
Whilst comparing the growth of manufacturing to the contraction of the service sector - it would be a good idea to explain what contribution these areas make overall Stephanie - I mean you wouldn't want to mislead everytone would you now?
If your service sector contracts by 0.5% - but it only contributes 1% to the overall GDP figure - then who cares. However a contraction in an industry that provides over 40% of UK GDP - then you would be most worried (and guess which is the biggest contributer to the UK economy?)
"Finally, we are reminded, not for the first time, that these quarterly figures can and will bounce about a lot in the early months of the recovery."
This is of course true Stephanie - but the astute amongst us would have been looking at the TREND of the figures, and not their actual values. It's the direction you're heading in which is more crucial than the speed at which your heading there....
2010 - the year of the great 'recovery'
Q1 GDP - 0.3% (revised up from 0.2%)
Q2 GDP - 1.2% (revised up from 1.1%)
Q3 GDP - 0.7% (revised down from 0.8%)
Q4 GDP - -0.5% (yet to be revised)
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The ONS has now confirmed what many bloggers on this website had already feared.
All money is created as debt bearing interest, and the amount of money (debt) must forever increase to satisfy the repayment of the debt + interest.
But there’s a catch, if consumers are unwilling to become increasingly indebted, the amount of new money generation inside the economy will slow and the spending power of the consumer will be eroded by interest payments on existing debt.
According to Credit Action:
Total UK personal debt at the end of November 2010 stood at £1,454bn.
The twelve-month growth rate was unchanged at 0.8%
The growth in personal debt (money) is therefore substantially less than the average interest rate on that debt. Contraction of consumer spending is therefore inevitable.
The economy of this country has been controlled, distorted and manipulated by the uncontrolled fractional reserve banking system.
The end product for many is a decline in living standards, and for some unemployment and destitution.
It has been said on this blog that the younger generation face a life of debt slavery.
Which, by any measure, isn’t much of a future.
Last year Douglas Carswell MP & Steve Baker MP introduced a private members bill on banking reform. Largely unreported in the mainstream media it identifies the primary problems and proposes a solution.
For anyone out there that doesn’t understand how it the banking system works and the price you have to pay there are two links below:
A short animated film by Paul Grignon, ‘Money as Debt’ (link below).
http://video.google.com/videoplay?docid=-2550156453790090544#
A group wishing to change the system (link below):
http://www.positivemoney.org.uk/
The ONS data is unlikely to improve, inflation will continue, jobs will be lost, bankruptcies and destitution rise.
And all this to protect one industry that rewards itself with very large bonuses. Perhaps the size of the bonus has a correlation with the decimation wreaked on the economy.
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SF wrote: Services still account for the lion's share of Britain's economic activity, and this recovery won't get far without them.
Please can someone explain to me how the economy overall would improve if we all have our hair cut twice as often as we do now?
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Oh look. Stagflation is here, just like so many said 3 years ago. What is the solution?! Print more money! Why not, it's a good way to make metal coins obsolete and I don't have to worry about change from £20 for a loaf of bread.
The joke is that the contraction is far worse due to inflation baskets containing so much deflationary technology. Digital cameras, TV's etc. in an inflation basket? Who cares about cameras when a loaf of bread has risen 50%? These products deflate easily, just like computers, so they skew inflation to the downside.
Then there is the actual quantity of product. Go and order a BigMac in McDonalds and you'll see what I mean. It may be the same price, but either my hands have grown a lot in the past 2 years or they've shrunk the size of the burgers between the bread.
The same thing has been happening in the USA for a long time now too.
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"no-one should be writing any obituaries for Britain's recovery on the back of today's news."
An ode to the grand UK economy.
It was a good thing while it lasted - but unfortunately god giveth...and god taketh away.
It shall be missed by all - especially when we're all eating turnip soup every single day.
Banks make profits - UK economy is less productive. Go and work it out Stephanie!
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Stephanie wrote:
'As I mentioned in my last post, real household income in the UK at the end of 2010 was lower than it was 5 years ago.'
How come? Have the incomes of the Chief Executives and of the financial oligarchy in the UK also decreased over the past 5 years? The UK needs to wake up. Hundreds of billions of UK pounds have been wasted by a financial elite (leading in deception) in the UK. Worldwide 10-15 Trillion US Dollars have been illegally hidden away (mostly untaxed) in tax havens and through offshore banking, assisted by all the major UK banks. The financial services industry is exploiting the average UK tax payer (someone has to pay for their mega bonuses, country houses, London appartments and failed speculation).
For more information why the figures by necessity can never add up positively for the average employee in the UK, please read a series of articles posted on my web blog:
http://globalinsights.wordpress.com/
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UK economic slowdown explained yesterday, and why ConDem government is making policy errors: http://bilbo.economicoutlook.net/blog/?p=13236
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...and now the BBC have added the classic "SHOCK" into their headline.
Really BBC? - shock for who? For those of us out here who saw this coming like a German Panzer in the flatlands of Holland - or was it merely a shock for those in denial and those who are paid to 'not report the truth'?
If anyone is shocked by this contraction they need sectioning - I mean this is about as shocking as seeing the sunrise this morning - or the shock I feel when gravity pulls things downwards...etc.
http://www.bbc.co.uk/news/business/
BBC - get a life. No shock, no Awe, just destruction and a lot of mis-informed journalists who appear to be totally incomeptent when it comes to analysing the economic situation.
Still - when the world of football is uncovered to be a pit of sexist and chauvonist peeeeegs and there is 'shock' at that - then maybe some of us are merely 'super perceptive'.
....however I suspect not - and this is all designed to pretend it wasn't the fault of the Government, bankers or Economists - it was just unforseen BAD LUCK.
Yeah - like the 'economic weather' reports Gormless Brown played out in his final days - trying to intimate that events were out of his control (which they were, but not because capitalism is anything like the weather)
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The Winter's Tale: it was the snow that did it, says Chancellor Osborne. The winter of 1947 and the extension of rationing to feed part of Germany helped to undo Atlee, the perception of the 'winter of discontent' did so much damage to Old Labour in 1978-9, but Mr Osborne will, unlike King Cnut, hold back the frozen tides and plough on regardless!
Adam Posen's citation of of Paul Krugman's blog entry for September 11 2010, 'One Model to Rule them All', is looking better and better. And the City and its Thatcherism, well, worse and worse.
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"Lessons from the latest 'growth' figures" is the title of Stephanie Flanders blog.
Recommend post 03 @ 11:00am on 25 January 2011 - 'Dempster'.
Good points, well made.
------------------------------------------------------------------------
In addition, my view is that the next quarter figures, no doubt, will look completely different? What people care about is keeping their jobs and homes, and that their children will keep their jobs and homes too over the course of this 5-year 'Coalition' government.
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#6 writingsonthewall wrote:
'...especially when we're all eating turnip soup every single day.'
Surely it should be 'neeps and tatties' (given it is the 25th of Jan)
Does anyone know whether the deficit (as a percentage of GDP) has risen or fallen ?
(my money is on us doing an Ireland)
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The usual weasel words from economists. Before Xmas it was: upcoming VAT rise will encourage big ticket spending and cause service sector growth. Now it's "snow causes slow down". You'll note Germany seemed to do ok - maybe they decide to export snow-ploughs.
Before Christmas it was "euro plummeting in value against resurgent pound" now it's "pound drops in value, and that's a good thing". You'll notice when the Euro drops it's the sign of an unmitigated disaster, when it's the dollar or pound it's a bit of savvy thinking by those in charge (or at very least a bit of good luck).
Next week "Fog on the Channel, Europe cut off".
Or will we see the balanced "SterlingZone in disarray as jobless blackspots [sic] unable to cope with fiscal and economic policy designed to support London". somehow I doubt it.
No: it's the snow, it's great to have a drop in Sterling, it's part of the plan, it's the way things go (the figures always bounce around). It shows a rebalancing of the economy towards manufacturing. Anything but the truth.
That we give so much credence to economists, and their bonus-adorned cousins in banking, demonstrates the gullibility of us common folk. They are the equivalent of evolutionary biologists: observe, then make up an untestable hypothesis for the observed results.
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These figures certainly came as something of a shock. Perhaps the bad weather was an influence. However we should keep some sort of perspective and perhaps wonder about how accurate these figures actually are as notayesmanseconomics points out.
"Another potentially ameliorating point is the fact that if we look further back into 2010 we saw “upward surprises” to growth in the second and third quarters. The numbers then were unexpectedly strong being initially reported at 1.2% and 0.8% respectively. I wonder if some of the growth unexpectedly reported then has dropped out of the figures in some way giving us a surprise in the reverse direction."
I notice that he also points out that we are never actually sure that we ever get the figures right.....
http://notayesmanseconomics.wordpress.com
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It is all very well to criticise the inflation figures (hedonics, gadgets in the shopping basket) as underestimating the truth. If pay demands are based on published RPI this does, at least, try to keep pay demands lower. If pay demands follow a true RPI figure than you simply get rampant inflation and no-one gains.
Seeing as GDP includes ALL economic activity not just things that will bring a real improvement in people's lives like manufacturing, scientific advances and exploration etc. then the important thing is that GDP in these useful areas increase. If telephone sanitisers (include here estate agents or whatever your pet hatred or service industry) see a contraction in business then so what?
What we need now is some tax breaks for the activities that produce a real return (and I don't include banking!) to encourage recovery.
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Whilst Osborne runs around media outlets "shouting don't panic don't panic" like the upper class twit he is, the markets are dumping the pound and running for cover. They have no faith in this government and we should not either. It is sad repeat of previous incompetent Tory Goverernment who pry on the poor and line the pockets of the rich.
Sadly, with the liberals facing extinction, there is little likelyhood that they will stand up an be counted (except as the tories they have become)and so we have little opportunity to elect a government that can deal with the mess that the present goevrernment is making much worse by their ill thought out,back of the fag packet policies.
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I think the beginning and end of your first sentence sums it up perfectly - "Once again...none of the leading City economists even came close."
What qualifications are required exactly for employment as a "leading" City economist? It seems the ability to be totally wrong on a consistent basis is about the only one. We continually have to suffer the prognostications of these self-appointed experts only to be told 3 months later that they got it wrong again, that the results are a "shock".
Shouldn't there be an enquiry? Why have standards fallen so low? Could we possibly not outsource these "City economist" functions to a "high-value" centre in Asia? After all, that's what the City has recommended for just about every other area of the UK economy - why not the economists themselves?
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@Richard35 Post 14
"as notayesmanseconomics points out."
Please. If I wanted to read that blog I'd go there. Can you and the other sock-puppet (I forget her name, perhaps Samantha) please stop spamming the board with this link?
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'Construction' has been a dirty word in the finance sector for over 2 years now. The banks have been pulling their capital out of the area at a tremendous rate (see RBS).
The large players have struggled but generally have other financing options; small and medium players have simply been blown out of the water as no-one has offered sufficient intelligent alternatives. This last point is true in other sectors but construction has been hardest hit.
It can hardly come as a surprise that the sector is contracting so aggressively.
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@muggwhamp
Two weeks of snow impact a whole quarter ? Actually it is worse than that because from restaurants to gift shops of all kinds, they actually rely for around 40% of their annual turnover in those two weeks. If you imagine the knock on effect on their suppliers, the bad news is not yet done I suspect.
Whilst Internet shopping has helped, I can assure that even postal deliveries down here in SW England were virtually suspended during that period and "Christmas Post" was still trickling through into January.
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Stephanie , last year you asked about unexpectedly good figures in construction which helped GDP in one quarter . Well I am certain that never happened as such , it was completely out of sync with previous quarters and afterwards in the sector , all statistics and anecdotal evidence points to a very tough year last year in construction . I suggest you look at Travis Perkins as a bellweather of construction activity . Business failures in construction remain high and with the publice sector squeezed and house prices declining there is no real growth area in construction , therefore only further contraction in construction is anticipated in 2011 and 2012 . I echo the sentiments of the outgoing head of the CBI , there needs to be a growth agenda as well as austerity and that can take the form of tax breaks or reduced bureaucracy to get construction sector moving .
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I told you so! So George Osbournes laughable excuse that the weather is to blame. The government is not doing anything for the UK economy there's simply no action taken apart from one "get-together" from some UK retailers.
So Labour were right and most people where like sheep and followed the UK papers. I bet the papers suddenly turn against the Conservative party and switch alliances.
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This comment was removed because the moderators found it broke the House Rules.
At 11:05am on 25 Jan 2011, writingsonthewall wrote:
"no-one should be writing any obituaries for Britain's recovery on the back of today's news."
An ode to the grand UK economy.
=======================================================================
No faith in mini-brain Osborne's visison for a Private Sector lead recovery then?
How many net sustainable private sector jobs which didn't susbequently disappear overseas were created when public spending on real services, not propping up the banks, was at its' highest? Answer is probably a couple of hundred thousand at most, which have since disappeared.
So the efficient private sector and all of their inbuilt 'advantages' created zilch in terms of new jobs during a spending boom time - government and household.
Therefore it stands to reason that cutting spending - either out of necessity or dogma - will shrink the private sector who rely on public spending contracts and piblic sector workers spending.
Or have I missed something obvious?
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I strongly agree now that this government needs to be very creative and introduce some ' blue sky thinking ' to try and get the economy moving forwards . Just as it has been bold in its austerity programme then it needs to also be so with growth , okay the pot is empty but there are things like tax breaks , reduced bureaucracy etc that can be used to move the economy forward and create jobs . The sector I am in construction has seen a growing need for affordable housing but nothing is being done to address this need at a national level .
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Stephanie,
I am no fan of ecomonics as my post history shows, but why didn't ecomonists ask what would happen to GDP if it snows in the winter?
Councils were stock piling grit for this very possibility.
Can I ask fellow posters if anyone cut back on Xmas spending because of the weather, or because money is a bit tight?
I am getting a bit fed up with experts almost always getting it wrong.
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I run a small business in the service sector, and I can tell you exactly why the economy is failing. The coalition has spent the last 12 months endlessly talking down the economy and terrifying customers and investors. Nobody wants to spend anything, because the politicians have been playing politics - which is what we should expect, really. The coalition has pursuaded us all that we are in serious and imminent danger, when the truth is that the government borrowing, as a % of GDP, is smaller than it was for 8 of the 11 years of Thatcher's premiership. It wasn't a crisis then, it's not a crisis now. Yes, it's bad - but not so bad that we need to destroy the economy just to save the economy!
The facts aren't nice, but they're nowhere near as damaging for growth as the idiological spin put on things by a government which is determined to shrink the state at all costs. Unfortunately, the cost is being paid by ordinary people, and by the small businesses that all parties agree are the powerhouse of growth and new employment.
I do worry that the coalition spends so much time gazing at a few square miles in the City of London, that they have forgotten about the real economy - without which the City could not function.
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Steph,
Why is it such a shock? The Coalition were left with two choices after the banker-boys and the previous administration combined to trash the economy. Double Dip OR Sovereign Debt Crises. They chose the double dip risk, rightly so IMO, because in the case of a Sovereign default we lose control of our economy.
Sir Richard Lambert was right as well - there's never been a 'growth plan', not under Labour and not under the Coalition. It's all been a 'poke and hope' industrial strategy.But unless we have one of those we're just tinkering.
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"Lessons from the latest growth figures".
According to the Daily Telegraph online - Britain is paying £6.4billion to the EU? The second largest after Germany? No doubt, there is chance I have mis-read those figures submitted by the DT....?
Just google Britain's payments to the EU - or any other EU country, for that matter. Which countries obtain most benefit?
For the record, I am pro Britain remaining in the EU - but our membership fees need serious re-negotiation by our government. Being a member of a club does not entitle that club to over-charge?
As members of the Carlton Club, many MPs know this - however, many memberships are tax-deductable or claimed on expenses? Unfortunately, the British public can't claim on an over-priced EU membership?
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The figures are something of a shock but when I consider my own december and the number of colleagues wwho lost work days wither through inability to get in or cancellations of meetinsg its possibly less suprising than it seems at first.
I work in a service organisation and the problem with such things cancelling is that our time drives our billing and its fair to say we will have lost a good few days during that month more than I would anticipate in an average quarter so maybe they have distorted the figures as the chancellor has claimed.
We'll see in the next quarter I guess although I was anticipating a pretty slow Q1 anyway and hopefully this reduces the threat of the BOE raising interest rates which alongside the cuts would be a serious problem.
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Isnt that rich! Our economy suffers from the same malaise in observation as does our cricket. No sooner do we have
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Unhampered by education in these matters, I would have thought that 10 days or so of economic paralysis in a period of 90 days and the usual Christmas shutdown, would be quite devastating. People not working and not spending; my personal experience was a steep drop in day to day spending, the lowest Christmas spend for along time, and a lot less travel.
Perhaps the experts can comment, preferably without blaming MT.
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20. At 11:47am on 25 Jan 2011, John Haynes wrote:
"Whilst Internet shopping has helped, I can assure that even postal deliveries down here in SW England were virtually suspended during that period and "Christmas Post" was still trickling through into January."
Late - but not 'unspent' - therefore no detrimental effect to the UK Economy.
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===================================================
@ 17. davidbrent wrote:
"Could we possibly not outsource these "City economist" functions to a "high-value" centre in Asia?"
===================================================
Whilst we are at it ... can we outsource the City Investment Bankers to Asia as well? It would cost us all a lot less and they would likely do a much better job!
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Not too surprising really. For the first time in years that we have no skips in our road! Poundland just opened in the High Street and is doing well! The Coalition are still increasing the fuel price, which does wonders for costs! And La Nina is creating havoc with our weather (or was till recently). If I was in still working I would be squirreling away my money 'cos the Coalition are all stick and no carrot. Where's the Private Sector Economic Growth Strategy? What price a second quarter negative figure - hello Depression again!
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"Usually, we would expect a strong bounceback in the first three months of 2011, just as the economy bounced back after the bad weather in the first quarter of 2010. But that assumes that households hold on to their spending plans, despite all the bad news on VAT and prices. You have to wonder whether they will instead seek to cut back."
Well crack addicts take time to be weaned off their habit - what makes you think the UK consumer is any different?
In spring 2010 the people still had job security in the public sector - the lack of total economic capitulation lead some to believe the recession was indeed over.....
......however that has all changed now and nobody (private or public) has job security and we're all scared of rising commodity prices causing us to save more and spend less.
I expect a 'bump' in the spring of 2011 - but not enough to make it significant - I'll be surprised if Q1 2011 shows growth above 0.1%
...but still - I'm not an economist - which is possibly why I'm more right than wrong!
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Perhaps we should be cautious about trying to explain something that may not be there.
Inspection of the quarterly GDP over recent years shows that quarterly irregularities and reversals are not unusual. They demonstrate GDP has a significant short term random element in it's behaviour. The flurry of explanations for this quarter's decline seems to be coming mainly from people who earn money from explaining things. Correlation does not imply, much less prove causality.
Perhaps we we're just expecting trouble.
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Economists; the only “experts” that despite being wrong most of the time are still listened to.
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Economists aren't even capable of predicting what has already happened. Why do they persist in trying to predict growth for years ahead? If they have no idea what Oct-Dec 2010 was like, how on earth can they tell us anything meaningful about 2012?
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26. At 11:57am on 25 Jan 2011, newblogger wrote:
'Can I ask fellow posters if anyone cut back on Xmas spending because of the weather, or because money is a bit tight?'
We (me and my wife) cut back because money is becoming tight, the weather had absolutely nothing to do with it.
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26. At 11:57am on 25 Jan 2011, newblogger wrote:
Stephanie,
Can I ask fellow posters if anyone cut back on Xmas spending because of the weather, or because money is a bit tight?
=====================================================================
Nope I spent as I would have in terms of On Line, at the Boozer and in the Shops. So did every single person and family I know. Some had delays in deliveries for orders on line but they were already PAID for - i.e. money was spent.
Suppose too hard for economists to understand - I mean how many of these experts predicted the banking crisis and extent of it.
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15. At 11:34am on 25 Jan 2011, Chris wrote:
"It is all very well to criticise the inflation figures (hedonics, gadgets in the shopping basket) as underestimating the truth. If pay demands are based on published RPI this does, at least, try to keep pay demands lower. If pay demands follow a true RPI figure than you simply get rampant inflation and no-one gains."
....so you're saying the wage slaves should accept pay cuts and freezes because it's good for the Economy.
...and if they can no longer keep apace with inflationary food prices then...."let them eat LCD TV's" - I presume?
The 'boss' can use whatever measure he wants to work out the wage structure - all that matters is the purchasing power of the worker which is going to be much reduced.
For the worker, keeping his purchasing power will cause uncontrollable inlfation......loosing it will merely result in a deepening of the economic contraction (worker = consumer).
This is a lose-lose situation - which is why it's going to get a little hairy over the course of the year...
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writingsonthewall wrote:
Lessons?
2010 - the year of the great 'recovery'
Q1 GDP - 0.3% (revised up from 0.2%)
Q2 GDP - 1.2% (revised up from 1.1%)
Q3 GDP - 0.7% (revised down from 0.8%)
Q4 GDP - -0.5% (yet to be revised)
The only lesson I can see that Osborne continues to follow the Irish path of austerity and has not learned one iota from being locked into fiscal tightening. This is bad news whichever way you look at it. Blaming the weather solely is naive and risky path for Osborne. It may be a blip but the trend above does not look good. When you consider that this is last 3 months of the year, before most cuts are implemented and before the VAT rise hit demand. Since then petrol prices have rocketed and inflation is now out of control and we can't rely on the Bank of England to raise interest rates....
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I can make these predictions for 2011 -
- Construction will continue to decline
- Commodity prices and raw materials will continue to rise sustained by demand in developing nations
- Inflation will rise as there is no downwards pressure to be seen
- Higher prices will lower demand and GDP will be under pressure all year
There needs to be positive steps to boost exports . There needs to be a sustained , relentless objective to try and drive growth . There needs to be some steps towards lifting the economy and the people of this country so we are more hopeful and optimistic otherwise we will be wrapped up in gloom and negativity which in itself holds us back . All parties need to be play their part and all MP's should be doing all they can for their constituents , there should be less party politics and more putting heads together to try and drive growth for the good of us all . We may not be in a war but its as good as in some respects .
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I think it must be very foggy - noone can see what is happening?
For at least 10 years we all enjoyed the benefits to some extent, either directly or indirectly, of money created on the back of false credit and overspending by our government.
Now we are suffering a period of adjustment. How long that period lasts depends on how good our medium term strategy is but things must be hard for a while, I would have thought at least 10 years.
Probably quite hard for a poltician to stand up and say that though!
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27. At 11:57am on 25 Jan 2011, Russell Jones wrote:
I do worry that the coalition spends so much time gazing at a few square miles in the City of London, that they have forgotten about the real economy - without which the City could not function.
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Forgotten? You and your like are after thoughts my friend. Thatcher's Tories followed by NuLabour followed ConDems sold out to the City, the Banks and the Multinationals who now run the country with puppets in charge.
Small/medium sized business do brilliantly to live off the scraps normally employing people to do something useful and productive.
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The current government strategy is to severely downsize the public sector and to rely on growth in the private sector to fill the gap. Is it any coincidence that the figures coincide with 140000 public servants receiving redundancy notices? Where is the necessary growth?
The government fails to see that public servants are consumers who buy goods and services. It seems that the lie that all the public servants who are being disposed of are 'back office' is starting to unravel. As someone who used to be a front line Trading Standards Officer and who has just been made redundant, I can refute this myth. 2011 is going to be a hard rocky road. I foresee an Autumn Election as the coalition buckles under the pressure. Either that or there will be a massive Heath like U turn by Cameron and his chums.
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12. At 11:29am on 25 Jan 2011, BobRocket wrote:
"Surely it should be 'neeps and tatties' (given it is the 25th of Jan)"
I'll give you swede - but potatoes don't grow in the winter. I'm thinking worst case scenario and I believe turnips grow all year round!
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Wrongly posted the following on another blog:-
Any GDP figure is nothing more than an educated (hopefully) guess. To then express that statistic to a decimal percentage point seems foolish. What about calculation margins of error?
If we carry on clutching at straws as we seem to doing, we'll soon have GDP figures expressed to three decimal places.
Imagine ... 'Q2 growth rebounded to 0.501%' The recovery has arrived!
I think our economic experts should take stock of past failures and stop pretending that they can accurately measure activity in a complex and volatile economy.
It's misleading.
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#20 John Haynes
With internet shopping - if you ordered your goods December then the sale was in that Quarter. The fact that 'snail mail' took until January to deliver will not affect the GDP figures.
None of this is a surprise - as the Darling Brown stimulus ebbs away expect more shock GDP figures.
One of the problems is that so many in the private sector depend on public sector business. Anyone in the know will confirm government departments have been slamming the brakes on expenditure for a while now.
Our main export markets have also tanked in a big way and using credit to import is difficult to obtain &/ costly.
Private sector, especially SME's, I suggest is/are building up cash as quick as possible and hunkering down - why invest now when you know there's a contraction in the pipeline? Why employ more people when NI is set to rise in April and the pension reforms are to be implemented in the next few years?
Only Osborne could have missed the above which is all 101 Economics when you think about it. "The markets will sort out the adjustment to the economy and wealth will trickle down" NOT.
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x00,000 (place whatever figure you like for the x as I have no idea how many actually did) of employees received s188 notices in October/November - all these people being told that within the next 6 months you could be another jobseeker.
With one of these letters in your hand what do you do? Spend like there's no tomorrow, or cut back dramatically because in 6 months time you may not be able to pay the mortgage?
I know which camp I would have been in and my wallet would have stayed in my pocket, yet Georgy Porgy simply blames snow for all the economic problems this country is in.
If it wasn't so tragic it would be hilarious.
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I wouldn't worry about this blip too much.
Social security claim figures are down and tax revenues are up; much better indicators of the economy.
Incidentally, is Ed Balls reading your blog Stephanie? His comments appear to change in line with your updates, only with a lag behind you.
Stephanie for Chancellor!
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If arrogant Ed Balls & Gordon Brown hadn't wasted all of the tax income when times were good - and then spent even more by borrowing time and time again - we might have something saved for these dark times.
But alas now we're left between a rock and a hard place. Run up even more debt and become a junk bond country - Mr Balls' solution - or run down the deficit and risk slowing recovery.
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Stephanie - you wrote " Long-term, it is good news that manufacturing and the like are strengthening, relative to the service sector". Why is manufacturing better than service? Don't we, more or less, have enough stuff - but not enough services - e.g teachers, nurses etc etc...Making almost anything requires processes that add to climate change which is much less the case with services.
I would also be very interested in your comments, Stephanie, or any other readers, on the brilliant (I think) little film, "The story of Stuff" http://www.storyofstuff.com/
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Nothing to see here – move on please
Yes disappointing but not a shock, after all we are only talking about small percentage moves and within statistical analysis probably within 1 standard deviation which means nothing at all! Personally i’ll be happy if this year follows last because I have not got a problem with ‘stagflation’. Whether the markets see it as a chance (the city) to attack is another question? After all having no moral fibre limits their responsibility to their own.
If you thought the path was going to be easy then I am sorry that you listened to the economists who for the umpteenth time got it ‘a about t’; again! It does seem that they are reading from the incorrect psalms doesn’t it? Forcing yesterdays beliefs on to today.
15. At 11:34am on 25 Jan 2011, Chris wrote:
“What we need now is some tax breaks for the activities that produce a real return (and I don't include banking!) to encourage recovery.”
I can not argue with this but timing is all important, if your foundations are not stable, then no matter what you do, your house will at some point collapse! If you had 4 consecutive qtr growths of lets say 0.2 %, then introduce the tax breaks as you suggest.
JFH will be along soon with his usual rheteric?
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The only clear thing here is that economists are the world's worst guessers. Economics as a useful predictor of anything is about as good as astrology (or maybe meteorology). Why Nobel prizes are awarded in this subject beats me.
Whenever a major financial calamity happens subsequently there is always one economist who apparently predicted it.
So one economist out of all of them guessed right on one occasion.
Why we put our faith in the MPC - full of economists - beats me.
Ken Clarke used to decide the base rate on his 'feeling' about the economy. I seem to remember he did quite well overall.
Economists-pah! Charlatans would be a better title.
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The weather had no affect on my expenditure. The continuing economic implosion did. So I left my money in my current account so that it could be swept up by the bank multiplied by 20 and moved off balance sheet because we just need to keep things going.
Actually I bought family members plenty of tinned food, a bazooka and a box of hand grenades.
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#23.... why is it referred for consideration?
Am I not allowed to ask Stephanie to get out of her London City bubble and come and visit the rest of the UK, where us amateur economists were not in any way shocked by today's figures?
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Nida Ali is hailing the increase in VAT receipt by 9% over the year to December. Note that the increase in VAT isn't a mitigation in this case as 2.5% is 16.7% of 15%.
So....
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9. At 11:20am on 25 Jan 2011, writingsonthewall wrote:
...and now the BBC have added the classic "SHOCK" into their headline.
Really BBC? - shock for who? For those of us out here who saw this coming like a German Panzer in the flatlands of Holland - or was it merely a shock for those in denial and those who are paid to 'not report the truth'?
If anyone is shocked by this contraction they need sectioning - I mean this is about as shocking as seeing the sunrise this morning - or the shock I feel when gravity pulls things downwards...etc.
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Indeed! If this has caused "shock" then it will be fascinating how they report things come the Summer/Autumn.
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Mmm. Remarks so well balanced they're glued on.
The ONS:
The decline in the fourth quarter is due to decreases in two of the component aggregate series, namely SERVICES and construction.
Total services output decreased by 0.5 per cent in the fourth quarter compared with a rise of 0.5 per cent in the previous quarter. The largest contribution to the decline in this quarter was from business services and FINANCE. (My caps)
..and you, of Balls:
He does not seem to be able to decide whether the economy is weak as a result of the coalition's decisions, or in anticipation of them. And the two paragraphs above)
You mean a policy cannot have effect both in anticipation and actual impact?
So much incidentally for the bloke Cable is fond of quoting, Oliver Blanchard, who thinks growth in government spending results in reductions in private sending.
Here contaction is causing contraction
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Construction - why didn't some of the mighty brains think of the following?
1. You can't get out of frozen ground.
2. You can't get deliveries.
3. People can't get to site, more difficult than getting to your average place of work.
4. Households cancel because of the weather.
Also this will be ongoing because if you are behind in the first place you stay behind meaning that later trades like electrical, plumbing etc. are left without their planned workstream and no guarantee of jobs to fill the gaps.
It's gonna be difficult at least for a while as a small business based in construction.
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It seems that every time Mr Osborne is interviewed he continually blames Labour for the problems the coalition government is facing and today he blames the'weather'thirteen times in his interview on the growth rate figures! Its time to wake up smell the coffee and take some responsibility Mr Osborne! Your country needs stability and fast!!
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"that assumes that households hold on to their spending plans"
How many people have household spending plans to hold onto? This sounds like an economists' simplification.
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#24 M_T_Wallet - will you not be persuaded that boosting the economy with public spending is no more than a brief, drug-induced "high". Where does that government money come from, after all ? In the long term, there are only three answers - we must export more, we must produce more for home consumption (import substitution) and, bitter pill, we must spend less. As Steph, I think, said, household income in real terms declined 5%. Yes, plenty of private sector firms flourished on the back of (often scandalously imprudent) goverment spending.
I suspect most posters accept that the government is not doing enough to boost industry. How much would it cost to publish a list of imported products, and the sums involved. to flag up for entrepreneurs, potential opportunities ? Why, for example, do we import chocolate from Germany ? We have a UK chocolate sector, even post-Cadbury, why don't we try to help grow it ? And full marks to that poster who asked what would happen if they got their hair cut twice as often. It would boost the GDP numbers - and the barber would nip out and buy some German Kinder eggs or whatever. And if we all ate out twice as often in a restaurant, what does that actually achieve other than speeding up internal money circulation. But for the Balance of Payments - zilch, maybe even minus zilch. GDP numbers, IMO can deceive and should not be taken on their own.
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Forgive me for being totally sceptical about the chancello'r excuse for a contraction in the economy, but did we not also have a bad winter in 2009? or doesn't his memory go back that far? I think Gideon is grasping at straws, first he blames the previous Labour government, then when that doesn't work he blames the world wide recession, and now he is blaming the weather, absolutely pathetic. What's his next excuse global warming, the wrong quality of snow, leaves on the line? The man is a smug, self serving idiot not connected to reality, time for a chan ge and quickly, at this rate under his pathetic stewardship this country will go down the tubes rapidly.
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I am sure I'm not the only one who forecasted exactly this situation back in early December.
The economy would take a knock because of the UK's complete incompetance in keeping the country and it's industries moving through a month of snow and ice. What is just as predictable is the stupid lemming like reaction of the money markets and economists whose short-termist attitudes have contributed more than a little to swings in currency and stock markets simply because they're doing little more than playing roulette on their computer screens.
By next Monday there will be some other headline, elsewhere that will lead the same people who were junking sterling today, junking the Euro instead. Is that really any way to run an economy.
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As Nixon said, Economists - frequently wrong but never in doubt.
The Pound has already fallen back as Steph points out so up go raw materials again and down go manufactured exports. Lining up nicely for the Double Dip. Thank goodness those N&SI inflation equalling bonds are back on sale in April; mind you they might be following a newly convenient 'inflation index'. My own employer,a manufacturer, has held off price rises for over a year but the pressure on raw materials means it's a 10% rise for our products this year.
But we can all take comfort from the increasing wealth of the top 5%. Can't we? This forum is too polite to mention the only trickle down I've ever seen.
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"as it turned out, none of the leading City economists even came close. The lowest forecast was growth of 0.2% - instead the first estimate is for a contraction of 0.5%."
Not surprising, when you remember that City economists are employed by City companies, so they naturally put a spin on their public statements, designed to serve the interests of their employers.
They do a good job. For many years governments have done more or less what the City wanted. Many City firms see their best chance that this will continue, in spite of the disaster in 2008, in having a government like the coalition, that will show a very hard face to those suffering economic distress as a result of City friendly policies.
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PLEASE go and ask the Office for Budgetary Responsibility WHY their forecast was so wrong - and what the implications are if we project the trend forward for the UK outlook.
I think the dog may well have to start biting the hand that feeds it - the OBR will either lose all credibility, or it will have to seriously question the government's economic policy - which will it be?
The CBI says no new jobs - OBR says millions of new jobs coming.
The ONS says 0.5 recession last qtr. the OBR says growth.
COME ON BBC JOURNOS - go and rock their cradle!
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@Kit Green. (4.) The most important thing about the economy is not the amount of money in circulation but the speed at which it travels. One of the problems built up by the last government was that people (and institutions) did not have the confidence to spend the money that they actually had. Hence the flow of money slows down with the result that tax receipts reduce, reducing government spending OR increasing government borrowing. Rightly or wrongly, if we all went out and spent more there would be more money coming our way each month.
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Isnt it rich! She sang. Our economy is just like our cricket. A bit of good news and we become No 1 in the world - only to fall flat on our faces within days.
So all our talk of growth returning, although we have no idea as to why is supplanted by talk of growth declining and we have no idea as to why. So who has the key to the future?
There is always an expression of surprise when these figures are published and that indicates that we have not a clue as to what is happening whichever way they go.
The fact remains that the economy struggles along bathed in solidified debt residing where it does the most damage and where little has been done to alleviate it.
Unemployment levels progress unheeded as though these can be ignored when our economists are doing their projections.
Look, dear Stephanie by whom we take our lead, "We do' no' nuffin!" But I do feel, like, I have no doubt, many, that I could write a book on the way things really are and will be if we as a nation remain as bystanders as though we have nothing to do with the game we are watching. But seriously. Why dont you give us a considered viewpoint on the way the economy will go over, say the next 6 months taking all the factors into account. A viewpoint that will take into account all the negative features that bedevil our economy. What we need to kickstart real growth. Where will inflation go and if it persists how long it will be before there is no marketplace for its inflated prices. And all the pain along the way. Without forgetting that dead donkey of debt!
Why should downturns be such a surprise if we do nothing to substantiate our progress or otherwise as the months go by. So, Stephanie, Do tell!
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So the City economists got it wrong again. Couldn't they see the weather from where their heads were?
They will be taking home the bonus millions while we mere mortals struggle to pay for it all once again, come the inevitable Tory double-dip recession - never mind the 1930s, just look at the early 1980s and 1990s.
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I hate to think about what will happen if it snows again this winter.
It would also appear that some of those retailers who, despite the snow still had a record breaking Xmas were telling porkies.
We will have to wait for 3 months to find out if we are in the classic double dip but the VAT increase should secure the deal.
Why don't we learn? In a recession, government are supposed to spend whatever it takes to replace the lack of private spending until private debt has been reduced to a level where people start spending again.
Instead they do the opposite and express surprise when they go back into recession.
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I am not a financial expert nor particularly interested in how it all works, so perhaps can see things in a more simplistic way. (Either that or I’m just irritatingly naive!)
Looking at the chart of UK GDP Growth in the 1990s, following the recession there were two quarters of modest growth followed by a dip, and then years and years of solid growth.
Today, following the worst recession since The Great Depression, we have had a few quarters of modest growth followed by a dip.
I read on these pages of economists and statisticians repeatedly commenting on trends, patterns and normal outcomes.
Could it not be argued, therefore, that the performance of the economy following the recent recession is behaving in a similar way that it did in the 1990s, but the contraction today is worse simply because the recession was worse?
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Some reflections on the negative growth figures. The major negatives seemed to be in mining and construction followed less significantly by transport and hospitality. From my industry’s point of view (Transport) I can tell you we were significantly affected by the weather for several weeks and I know many construction projects stalled, started their Christmas break early or works were postponed to January. I can imagine mining was also affected and anecdotally I know of many Christmas party bookings that were cancelled so all of those sectors do seem to have been genuinely affected by the weather.
Thinking ahead to these 3 months well from my perspective we have been vey busy catching up, anecdotally bars and restaurants are fuller than I am used to seeing at this time of year and the IKEA near Birmingham was rammed this weekend. Evidence of deferred spending from the Christmas period? Well if you spent less on presents or construction than you expected then you will probably spend it in January, just not necessarily on the same things.
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24. At 11:54am on 25 Jan 2011, M_T_Wallet
Oh I believe that Osbourne is right on one count - private sector jobs will be created to fill the lost public sector ones....
....just not in the absurd timeframe he thinks.
However I have no doubt that eventually, once there is no public health service, no public education and threadbare public services - eventually some 'capitalist' will step in a provide a sub-standard service for 'a price'
What's going to be the hard sell is the lack of tax breaks for ordinary citizens - I mean they're paying the same (if not more) - but getting less and less in return - eventually they will give up and start looking for those who caused this mess and falsely claimed they could lead the people to salvation.
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#47 Philmus wrote: "The government fails to see that public servants are consumers who buy goods and services". Yes indeed so - but where does their salary come from ? Taxation - and government borrowings. Just test the argument by postulating we double the number of civil servants - what a boost to the economy that would be, ha-ha! No Sir, you're talking Monopoly money!
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At 11:38am on 25 Jan 2011, davidbrent wrote:
I think the beginning and end of your first sentence sums it up perfectly - "Once again...none of the leading City economists even came close."
What qualifications are required exactly for employment as a "leading" City economist? It seems the ability to be totally wrong on a consistent basis is about the only one. We continually have to suffer the prognostications of these self-appointed experts only to be told 3 months later that they got it wrong again, that the results are a "shock".
Shouldn't there be an enquiry? Why have standards fallen so low? Could we possibly not outsource these "City economist" functions to a "high-value" centre in Asia? After all, that's what the City has recommended for just about every other area of the UK economy - why not the economists themselves?
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Well said. We should also add Governor of BOE,all ministers and PM to the list of jobs transfered to Asia.
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Stephanie, The last quarter of every year has two non working weeks for many industries. Something like 8% non-productive time compared with say the first quarter. Add to this a further week of weather down-time and the 0.5% contraction actually represents a 11.5% growth.
Oh and by the way, there will be another dip in july/august because the key industries are on holiday then as well. Funny that noone has explained this to economists.
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RE: Pam Lawrence on "The story of Stuff"
I didn't like it.
Making more "Stuff" is what has made the world richer, healthier and I would argue happier.
Let me explain one aspect of the happiness argument: only as societies have become richer have we seen time given to liberal considerations, like anti-slavery, state child welfare, anti-racial discrimination, etc. Another would be the increased financial equality between countries that trade and making stuff gives us (30 years ago most of Asia was locked in poverty, India and China are both growing much faster than the older Western economies)
Let's look at the alternative: what do the 5-6 billion people on earth do otherwise? All return to self-sufficiency farming. This uses much more land than modern large scale farms and so we would destroy all the remaining natural reserves?
Finally, let's look at the future, which is bright:
- The world is evolving to use less material - at Christmas we can buy an iphone (or similar) and vouchers and hey presto - less stuff, more fun
- Scientific improvements in food production (farming) have meant that with a minimal increase in arable land we have been able to feed about 10x the number of people over the last 100 years; with global population expected to plateau at 9billion, we should be able to find new improvements and release more land to become wilderness again - and a greener more wild earth
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Who cares what Mr. Balls says? If he had not been in office between 1997 and 2010 then our economy would have been in a much fitter state than it is now. Why look to the problem for a solution?
The fact that manufacturing and agricuture have grown is very good news. This is the sure sign that the real economy is repairing after years and years of abuse.
As the credit boom recedes into history and the foolish are left to count the cost there is going to be darkness and the gnashing of teeth, but we all knew that the path going forward would be very bumpy and even dangerous. So I am not all that surprised at this outcome.
I think this indicates that what the Coalition has been doing has not been enough. The focus has been soley on spending cuts and not the broader economy. They really need to get their collective finger out to encourage and facilitate a faster rebalancing of the economy to those growth areas like manufacturing and agriculture. This is where the new jobs will be found.
It is now time to set about reforming the banks, separating retail from the casinos, splitting up the retail into smaller units and removing the taxpayer guarantee from the casinos. I shouldn't worry too much about what the bankers will say as they don't care about what we say. What is sauce for the goose is also sauce for the gander.
Then as we make the banks more responsive to the real economic needs of the country we will get the resurgence in manufacturing we so desperately need. What is more, policies from government which faciliate training and investment will only support that process.
On a closing note the decline in construction is a direct consequence of the light going out in the domestic property market. This need not be a bad thing: it has been seriously out of order for a long time. So now we need to get that social housing built.
As I said it is time for the Coalition to get its collective finger out and start facilitating. It costs little money to set up your stall and encourage others to invest.
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Extract from the Met Office:
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Widespread heavy snow and icy conditions, 17–23 December 2009
From around mid-December, cold air from eastern Europe dominated the UK weather. This was to be the start of a cold spell which would continue up to the start of the Christmas period. Widespread frost, ice and snow affected some areas.
The first significant snowfall occurred on the night of Thursday 17 December and into Friday 18 December. Parts of south-east England, Yorkshire and north-east England were badly affected, with particularly deep snow in parts of East Anglia.
By the weekend of 19/20 December the cold air had spread across much of the North Atlantic, effectively surrounding the UK.
On Sunday 20 December heavy snow from the north-west affected western areas of Scotland, northern England, and Northern Ireland.
On Monday 21 December heavy snow affected southern areas of England during the late afternoon and evening, as milder air from the south mixed with the cold air already across the UK. Snow was particularly heavy during the evening rush hour in parts of Hampshire.
On Tuesday 22 December eastern areas of Scotland had frequent snow showers.
By Tuesday night less-cold conditions began to move into parts of south-west England. However, the wintry problems were far from over as rain fell onto frozen road surfaces leading to ice on many routes in Cornwall, Devon and Dorset.
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Let's be honest now we had snow last Christmas.
And the economy grew by 0.1%.
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The economic adviser Nida Ali said "Tax receipts seem to be growing nicely and it's interesting to see that VAT receipts were up almost 9% on last December. Though part of this reflects the higher VAT rate (17.5% against 15%), it also suggests greater consumer activity in December than other sources have reported."
This is utter rot. The change in VAT from 15 to 17.5% should have created a 16.7% surge in VAT receipts. Economics really is the dismal science - it hasn't even mastered basic arithmatic. Rather than contradicting the picture of a slowdown this piece of Treasury data strongly validates it. What is rather alarming is that neither government ministers, nor BBC journalists appear to be capable of recognising it.
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...as one of the big declines was in the service sector - can someone explain to me how the weather affects this?
I mean most services are online - my financial advisor didn't shut down due to the weather - he just worked from home instead.
It's a fair argument to expect the construction industry to suffer from the weather - but only in building. Sales of constructed properties should be minimally affected. I mean Bovis didn't stop selling the flats near me because th weather was bad - and the opportunity of a month with sales and no new builds starting should have been a bumper one.
...I suspect the dead housing market has more to do with the decline of construction - as well as the cancelled building projects at schools and other public arenas.
If you don't have an olympic contract - I wonder if you'll make it through to next year....
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#48 writingsonthewall
'...but potatoes don't grow in the winter. I'm thinking worst case scenario and I believe turnips grow all year round!'
Potatoes store well and those with foresight grow enough to last the barren periods, even those who think that you don't get many seed potatoes for £3 and buy three bags instead of two also end up with more than enough spuds even allowing for losses due to the unseasonable frost and snow. (I gave loads away as I had nowhere to store them)
If the pound is falling then imports become more expensive and people will buy fewer (but more expensive) items.
Fuel protests will start if derv gets close to £1.48/lt so unless there is a global drop in the price of oil (to match the fall in the pound) there will be trouble ahead.
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The coalition took a chance to get all the bad news in early in their potentially short-life. So, measures of Conservative ideology are in - their risk will be a cycle of decline for non-city enterprises, not too bad a risk in their judgement. Wil they look now to stand on their morality in OUR tough times? Will they try to produce practical stimuli? When the economy is pictogrammed as a handbag - they will stick with their morality as a lesson to us all. Nanny always gave us foul medicine to make us strong.....
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The figures show that the 'Fools' idiotic zero interest rate policy is NOT a catalyst for growth. Growth is a mirage unless interest rates and monetary policy is rationally based.
Interest rates have to rise - indeed the market will force rates up because of these figures. The pound will fall too - we should have joined the Euro a year ago - we will desperately need the protection of a stably priced home market of 500 million to get a real recovery - yet the Little Englander idiots still have the upper hand and will continue to do severe damage to the country!
The underlying problem of the private debt overhang MUST be tackled and until it is, we cannot recover. These figures reinforce my analysis of the economy as I have been putting froward for the past years. Government spending must increase and they must spend it on infrastructure projects and not on paying unemployment benefit!
The only 'shock' in these figures is that experienced by the Harvard (badly!) educated economists who believed their own propaganda against all historical analysis and common sense!
We need a National Government to tackle this economic crisis - Tory, Liberal and Labour working together for the benefit of the country. This is the worst crisis for over a century since the Long Depression of 1873-1896 - worse than the 1930s - and we have a National Government then so we MUST have one now. The country MUST work together.
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#57
I hope you explained that the silver tins with the ring pull on the top are food and the dark green ones with the ring pull on the side aren't :)
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'... This is what Nida Ali, economic adviser to the Ernst & Young ITEM Club, had to say about today's public finance figures:
"Tax receipts seem to be growing nicely and it's interesting to see that VAT receipts were up almost 9% on last December. Though part of this reflects the higher VAT rate (17.5% against 15%), it also suggests greater consumer activity in December than other sources have reported."'
====================================================
Oh dear ... another economist missing something important like:-
"Maybe consumer activity was flat or declined BUT PRICES INCREASED!"
Honestly!!!
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53. At 12:23pm on 25 Jan 2011, No more boom and bust wrote:
"If arrogant Ed Balls & Gordon Brown hadn't wasted all of the tax income when times were good - and then spent even more by borrowing time and time again - we might have something saved for these dark times. "
Wasted? - I see a lot of new hospitals, a lot of new schools, a lot of publicly beneficial things being bought with those tax receipts.
...and what did the bankers do with their bonuses? - I mean we could do with some of that cash right now.
How many hospitals did the bankers build? - how many schools?
There may have been a lot of waste in the process - but it's better to be wasteful pursuing something good for society than not be wasteful in pursuing one's own self gratification.
I'd rather contribute to an underused MRI scanner than a super-car for a Spiv's collection.
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As I noted at the time, the fact that the bad snow came so close to Christmas meant there was a quite a strong possibility that the short-term loss in sales on the High Street - and online - would not be recouped. If you don't buy a Christmas present before December 25th, there's a fairly good chance you won't buy it at all.
Now come on. as weak excuses go that takes the biscuit. Apart from citizens of some obscure hamlet on the Yorkshire Moors Xmas shopping was no problem. Anyway several retailers posted increased figures year on year.
It is the usual problem (post WW2) the UK does not do 'successful economic management'.
Time to not just join the Euro but also cede economic policy to a German led Federal Europe.
You know it makes sense.
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#75. GooGav wrote:
"Today, following the worst recession since The Great Depression,"
I think you will find that this recession is worse than the Great Depression of the 1930s - The nearest parallel is over a century ago the Long Depression of the 1870s. I have previously set out in detail why the present problem is worse the the 30s and structurally similar to that of the 1870s. Remember also that interest rates are at the lowest levels since 'the flood' (antediluvian!) i.e. for millennia. In the thirties rates did not drop below 2.5% - never in the over 300 year history of the Bank of England have rates been anywhere near as low as they are at present - and even with this rates the economy can't recover!
The reason for this is that the debt overhang in the private sector has a death like grip on the country - it must be unwound before we can recover!
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It's seems that the only people that are surprised by this are the ones that don't live in the real world.
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40. At 12:13pm on 25 Jan 2011, Dempster wrote:
"26. At 11:57am on 25 Jan 2011, newblogger wrote:
'Can I ask fellow posters if anyone cut back on Xmas spending because of the weather, or because money is a bit tight?'"
I cut back...not because of the weather or the belt tightening.
I cut back because I simply have got 'enough stuff' - I don't need anymore, the house is full of it. I need a garage sale or an E-bay account.
I did however buy new boots, new coat and a lot of cold and flu remidies - purchases I wouln't have made if the weather was better.
The weather never affects the economy - you would need 90 days of incapacitating snow to make a dent in a quarter - simply because most things can be bought online or locally. Only totally ruling out those that aren't would make a difference.
...and I correct myself from before - construction isn't affected by the weather - I checked with my builder. Apparently he works in all conditions and if it's snowing outside - there are plenty of internal jobs that always need doing on a large build.
You'll be surprised to hear that JCB's and other tracked construction vehicles have very little trouble getting around in the snow!
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Presumably Ed Balls' point is that the slowdown has come from the anticipation of the coalition's aggressive cuts (and uncertainty as to their precise contours). This is a perfectly coherent point. It is not in any way at odds with Balls' additional point that as the cuts actually come into effect, this will further inhibit growth in the economy.
Of course, it's a further matter whether his claims are true.
I find them quite plausible, myself.
Ball's long-held view is that the key UK priority is promoting growth, more than cutting expenditure (necessary though he thinks that is). The CBI's Sir Richard Lambert seems to agree.
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No. 84:-
Just remember Simon, there are three types of economist - those who can count and those who cant!
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71. At 12:52pm on 25 Jan 2011, Broadwood Widger
What monetarist claptrap.
By that argument if I pass the same tenner around my street (and the Government takes a little tax for each transaction) - then we can clear the deficit in a few billion cycles.
...of course nothing has been created of value (but the velocity of money has increased) - so how does this help the Economy?
Give it up man - even the monetarists have deserted moneterism - I haven't heard Friedman say anything about this crisis or it's solutions.
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Stephanie Wrote:
Lessons from the latest growth figures
~~~~~~~~~~~~~~~~~~
Mushroom is very disappointed, because:-.
1. There are no reliable figures
2. The thing they are trying to measure is not growth
3. The latest figures do not reliably indicate the underlying trend, and
4. Nobody is going to learn lessons and make policy changes on the back of these numbers.
Stephanie surely know all this, so whywaste time and effort writing about it?
Besides, I am still waiting for an explanation (from the last blog) why it is that after umpteen years of a reducing cost-base due to offshoring and globalisation, UK plc (and in particular the UK general population) isn't subtantially better off.
We now know how it happened (debt-fuelled growth in the broad money supply), and we know who benefitted, but down here in the mushroom farm we don't know why the policy-makers allowed/encouraged the impoverishment of their population.
Not 100% believing the "vested interest" rants, (even my own), mushroom thinks there must be an economic theory which required those with their hands on the levers to pull the "devaluation" toggle when cheaper goods would have been the natural result of the offshoring of manufacturing.
Even if the alternative to cheaper goods would have been fiscal policies to protect the UK workforce, (which is generally considered a "bad idea" and may even be illegal for a member of the EU.)
In what way was it good for the UK, that the policy-makers chose to allow the UK workforce to become unemployed, and balanced the resulting obvious decrease in demand by increasing Government spending, while simultaneously devaluing the currency?
If the combined effect of all these policies was simply to maintain the illusion of "growth" in spending-based-GDP, then I reckon it wasn't worth it.
Can anybody tell me what bad thing would have happened if all our goods and services had become cheaper as a result of offshoring?
I know, it is probably Economics 102, but humour a poor mushroom (in plain english if possible.)
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Economists get it wrong because their theory & models are flawed.
They are all based upon the subjective notion of value - marginalism.
They departed from the classical economists, such as Smith & Ricardo, who (admittedly inconsistently) has an objective concept of value based upon labour.
The trouble for the capitalists was the classical theory exposed the fact that all profit is created by labour.
That the capitalists live of the labour of workers - as most people intuiitvely know.
As soon as this foundation was removed they are all at sea.
The neo-classical theory showed that capitalism was stable.
The 1930's discredited them & Keynes attempted to show that capitalist equilibrium could be at a high rate of unemployment.
The 1970's should that Keynesian fiscal stimulus could not generate full employment without debasing the currencies.
So where are we now?
Where are the theories that explain capitalist crises?
As uncomfortable as it is for many it was Marx who carried on the scientific analysis of how capitalism works.
Marx refined the labour theory of value.
Marxists emphasise how prices get out of line with values & how crises can restore the law of value.
But Marxists go further, not just explaining the business cycle, but explaining just how capitalism will breakdown.
This crisis does show signs of the long awaited breakdown of capitalism.
But be warned Marxist crisis theory ain't easy.
If you are a novice don't even try to start with Marx's das Kapital.
Chris Harman's Economics of the Madhouse in a gentle intro.
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"Economists are surgeons who have an excellent scalpel and a chipped lancet, wonderful at operating on the dead and torturing the living."
This was written over 220 years ago, by Sébastien Nicolas Roch, known as Chamfort.
Plus ça change ...
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Construction is going to contiue to contract. Lots of projects that were started in 2007 are now coming to an end. There are few large projects starting. The weather may be a factor why activity was less than expected, but wasn't there supposed to be a surge before VAT came in? On the plus side it could be that early 2010 showed undue optimism. Everyone knew that whichever party won the elction there were going to be cuts and tax rises, so people were spending whilst they still had a job and a bit of money. Part of the present problem is that remedial action was delayed until after the election, when action a year earlier would have been what both parties recognised as being essential.
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This comment was removed because the moderators found it broke the House Rules.
86. At 1:04pm on 25 Jan 2011, BobRocket
Bob - your potato knowledge is unsurpassed.
I hear Japanese vegetables are also the way to go, they like growing in our winter climate and they love pointless monetary stimulus as much as anyone!
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#89 LOL!
#88 JFH
The BOE knew fine well low interest rates and QE would only lead to inflation, not growth.
I can only assume the unofficial plan is for double digit inflation, probably with interest rates to match!
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80. At 12:59pm on 25 Jan 2011, Broadwood Widger wrote:
"Stephanie, The last quarter of every year has two non working weeks for many industries. Something like 8% non-productive time compared with say the first quarter. Add to this a further week of weather down-time and the 0.5% contraction actually represents a 11.5% growth. "
...and what do you think consumers do in these non-working times? Sit around and count their pennies?
Your miraculous growth turnaround is only applicable to certain industries, across the board the retail sector often compensates for the slowdown in other sectors.
...and I don't know which industries have 2 non-working weeks in December - factories don't do a fortnightly shutdown anymore (which used to be 2 weeks in August, which I presume you're referring to) and I can't think of a single industry that actually shuts down for 2 weeks.
As a lone capitalist - your desperation is obvious - do you know what 'seaonally adjusted' even means?
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78. At 12:57pm on 25 Jan 2011, Anselm wrote:
"#47 Philmus wrote: "The government fails to see that public servants are consumers who buy goods and services". Yes indeed so - but where does their salary come from ? Taxation - and government borrowings. Just test the argument by postulating we double the number of civil servants - what a boost to the economy that would be, ha-ha! No Sir, you're talking Monopoly money!"
...and if we double the number of bankers?
Sadly most jobs are merely 'recycling' wealth - only those which involve labour are producing real value.
The tax bankers pay is simply recycled too - and yet apparently our recovery depends on it.
Simple ideas often capture simple minds quite easily.
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The Conservatives were warned that their policy of massive cuts and tax increases risked a double dip recession.
They've really done well to combine it with high and still rising inflation though.
Rob
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Perhaps this is a good time to remind ourselves of the ‘growth years’:
Total individual debts (£ billion)*
-----------------------1997 ---- 2007
Secured on dwellings--- 419 ---- 1,131
Consumer credit--------- 84 ---- 214
Total------------------ 503 ---- 1,345
*Source: Bank of England
The above represents a 167% rise in household debt over ten years
Economic growth was caused by an increase in debt.
Now in UK personal debt at the end of November 2010 stood at £1,454bn.
The twelve-month growth rate was 0.8%
Our economy can grow of course, but to do so, people have to become more indebted to banks.
Because as most of now know, all money is created by someone, somewhere going into debt. And it’s looking like someone, somewhere is no longer that keen.
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Looking at the breakdown of the figures the contraction of the construction industry is the most severe. I believe the reasons for this are as follows:
1) lack of bank lending to developers as any new property investment is perceived(probably correctly) to be high risk
2) Banks limiting the supply of mortgages by enforcing what can be considered unreasonable underwriting rules
3) The expected cutback in public projects
4) The weather reducing ability to actually build projects and hence then invoice for the work.
The 4th is a one off effect but the others are an ongoing problem.
How can these issues be resolved? To be honest I'm not sure they can be. It would be wrong to force banks to lend on risky projects, thats what got us here in the first place.
Banks won't lend money to individuals whilst there capital reserves remain depleted and despite what Labour say no government should be spending huge sums on capital projects when we can't afford it.
We will only see sustainable and consistent growth in the economy when other parts of the economy take up the slack.
Though economists try and predict specific levels of growth I do not believe any econometric model is up to the job and probably never will be as humans just don't behave as social scientists expect them to. (I'm a trained economist by the way)
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5. At 11:04am on 25 Jan 2011, dj_gandy wrote:
Oh look. Stagflation is here, just like so many said 3 years ago. What is the solution?! Print more money! Why not, it's a good way to make metal coins obsolete and I don't have to worry about change from £20 for a loaf of bread.
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I think people should worry about their change.
It maybe a sign of the times but from the last 12 pound coins I have recieved in change in the last week 5 have been fake. More worringly the coins are working in ASDA's self service tills and from £4 change three of the coins were fake. Some are really good copies but one has the lettering around the queen worn down the date cannot be read but it must have been in curculation for years.
Official statistics are 1 in 36 but 5 in 12 is taking the biscuit, which is ironic as it was hob nobs that cost me £3.85.
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For business cycles go to Richard Goodwin.
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86. At 1:04pm on 25 Jan 2011, BobRocket wrote:
'Fuel protests will start if derv gets close to £1.48/lt so unless there is a global drop in the price of oil (to match the fall in the pound) there will be trouble ahead'
Why £1.48, as opposed to £1.47 or £1.49?
I'm curious, why so specific?
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What a lot of drivel. I am not in the least bit surprised the economy is contracting and I doubt anyone else is really. Enormous attempts have been made to talk up the "recovery" but there has been little sign. Take out quantitive easing and artificially low interest rates and the economy would be in free fall. Now add in 2.5% hike in VAT and I don't see the economy growing for some time now.
Making excuses for why there are mitigating factors is the same old rubbish trotted out about inflation figures being "distorted" by high commodity prices. Somehow it isn't "real" inflation, but it is. And this is "real" contraction. Learn to live with it.
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@ The coming storm (92) For a petrifying moment there, I thought you were being serious.
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Spending cuts reduce our incomes and demand so households, businesses and banks cut back too, a positive feedback loop that worsens the problem.
http://moslereconomics.com/2009/01/23/proposal-for-the-uk/
Cut VAT to the EU minimum 10%, cut job taxes on earned income and national 'insurance' and require the 12% unemployed to work at Decent Minimum Living Wages of around £7 an hour, like in Norway where, we desperately need to employ/train/educate the 20% of unemployed youth and those long term unemployed, say over 4 weeks, as the current price/inflation control mechanism of unemployment is horribly expensive AND ineffective.
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And I will predict a further contraction when the January figures are published when the fuel rises, VAT increases, fiscal policy and weakening pound will also push prices up and reduce disposable income further.
The Government can do something about all of the above. If they can't, get a Government in that can.
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Shock Contraction in UK economy.
Really?. This is not a shock at all to any of the regulars on this and Roberts Blog's. Most of the people on here have been pointing out the problems with the economy, the banking system and the course that capitalism has taken for months, so no it was not a shock to any of us.
Maybe these so called highly paid economists should read this blog more often to get a heads up of where we are going. The reason they find it shocking is they cannot understand why due to contradicting statistics. I'll tell you why, the TBTF banks broke the economy, TBTF banks broke capitalism, TBTF is the problem and turned economics and free market capitalism on its head.
Both the US and UK are in a death spiral they cannot control as they have lost the ability to use interest rates to control inflation. The situation is only going to get worse as the spivs speculate more on commodities and the spending power of people is reduced even further.
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1. Muggwhump
"Two weeks of snow isn't going to have that much effect on a whole quarters growth...Blaming the weather simply isn't good enough."
I don't know where you live but even here, in normally balmy SW England it was seriously cold for 6 weeks, with 9 inches snow on the ground for at least three of them. Again, where I live, the shops are still full of Christmas stuff that retailers are desperately trying to get rid of as it did not sell in the normal Christmas run-up. People simply didn't go out! It's clear that economic activity is, at best, muted, but to try to hang this small reversal on the effects of government policy that hasn't even come into effect yet is stretching credulity...as ever!
Ed Balls, rather like his old boss, is a complete fraud as an economic "genius". More than anyone else he is responsible for New Labour's abject subservience to the wishes of the City and the consequent irrational euphoria that went on far too long. While voters basked in the false sunshine of cheap goods produced by Chinese factory hands happy to work for less than a dollar a day, Ed happily presided over the near collapse of the UK's export market...to the extent that we are fretting over the loss of the Irish Republic as a key export destination (no offence to Irish people intended). His fingerprints are all over our current economic predicament and I expect the Coalition to remind him of that every time he opens his mouth!
So what is Ed's recipe for economic success? Borrow more money so that we can spend our way out of debt? It seems odd that a man with three children of his own is so relaxed about blighting their future opportunities with a crippling debt burden. Then again, they can't vote yet so they probably don't enter the equation!
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"Tax receipts seem to be growing nicely and it's interesting to see that VAT receipts were up almost 9% on last December. Though part of this reflects the higher VAT rate (17.5% against 15%), it also suggests greater consumer activity in December than other sources have reported"
Now, correct me if I'm wrong but an increase in VAT from 15% to 17.5% means a percentage increase in VAT revenue of 2.5/15*100, or 16 and two thirds percent, so a mere increase of 9% means 7 and two thirds percent less than it should have been given equal value of purchases, so it infact indicates a reduction in activity of just over 1%.
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MMT predicts that there will be a downturn in UK. Mainstream economics doesn't.
So that tells me there is something very wrong at the source of mainstream economic (MSE) practice, opinion and theory.
Even if you don't like some aspects of MMT, these figures shine a light on yet another predictive failure for MSE. How much longer will 'the experts' [no matter where they are] be allowed to pontificate and get it wrong?
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111. At 1:43pm on 25 Jan 2011, stennylfc wrote:
'I think people should worry about their change.
It maybe a sign of the times but from the last 12 pound coins I have recieved in change in the last week 5 have been fake. More worringly the coins are working in ASDA's self service tills and from £4 change three of the coins were fake. Some are really good copies but one has the lettering around the queen worn down the date cannot be read but it must have been in curculation for years.
Official statistics are 1 in 36 but 5 in 12 is taking the biscuit, which is ironic as it was hob nobs that cost me £3.85.
----------------------------------------------------------------------
Excellent blog:
My average for fake £1 coins is down to one in four are fake.
But no seems to mind, none have ever been refused.
Not so the really good fake £20 notes that are doing the rounds.
So far I've had three from the bank.
But many stores are now checking carefully and declining to accept them.
It's the embossed silver strip (alternate head of Adam Smith and 20) on the left hand of the front face which is the point to check.
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#96. Ball's long-held view is that the key UK priority is promoting growth, more than cutting expenditure (necessary though he thinks that is)
During their 13 years of government there was ZERO private sector employment growth in the midlands. How can you even listen to him, let alone give him any credibility?
What has happened to this country that the first thought of so many is "what are the government going to do about it". The government have a role to play, but so do we. We need to improve our personal skills, improve the products we make and sell, improve our levels of customer service. Most of us can personally take steps to increase the GDP.
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90. At 1:07pm on 25 Jan 2011, TonyH
"What is the ITEM Club?
The ITEM Club is one of the UK’s best-known independent economic forecasting groups. Its quarterly forecasts and special reports consistently achieve widespread coverage from the UK and international press, who frequently refer to ITEM as ‘respected’, ‘leading’, ‘authoritative’ and ‘trusted’."
...written by E&Y of course!
It's a club for those who love to state the obvious - a well respected and leading butterbum for the Government.
...only last week someone from this club was telling us at breakfast that inflation isn't too much of a concern.
...wel I've got news for you sonny - it may not be a concern in China where their growth is 10% - but here, where we there is no growth - it's rather concerning.
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92. At 1:14pm on 25 Jan 2011, TheComingStorm wrote:
====================
Nothing about joining the Euro makes any sense at all. Ask the Greeks and the Irish - they will tell you what happens,
Why should we hang on the coat-tails of another country? Can we not think for ourselves, have some self-confidence and, most importantly, get it right!
At the moment - seemingly not, as our leaders and pundits don't understand how the system really works. Joining another huge mistake won't help, we would just be further in the mire!
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• 109. At 1:42pm on 25 Jan 2011, Dempster wrote:
Perhaps this is a good time to remind ourselves of the ‘growth years’:
Total individual debts (£ billion)*
-----------------------1997 ---- 2007
Secured on dwellings--- 419 ---- 1,131
Consumer credit--------- 84 ---- 214
Total------------------ 503 ---- 1,345
*Source: Bank of England
The above represents a 167% rise in household debt over ten years
Economic growth was caused by an increase in debt.
Now in UK personal debt at the end of November 2010 stood at £1,454bn.
The twelve-month growth rate was 0.8%
Our economy can grow of course, but to do so, people have to become more indebted to banks.
Because as most of now know, all money is created by someone, somewhere going into debt. And it’s looking like someone, somewhere is no longer that keen.
…………………..
For growth to happen we need either:
Growth in Government spending (ie debt)
Growth in private borrowing ( to enable consumers to spend, because inflation in commodities and lack of wage growth is reducing their ability to spend).
An excess of exports over imports, so that new debt free money is coming into the country (ie China)
Now how’s it looking. Mmmmm not good.
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25. At 11:56am on 25 Jan 2011, Mr W wrote:
this government needs to be very creative and introduce some ' blue sky thinking ' to try and get the economy moving forwards
---------------
I fully agree with Mr W, we need politians with backbone and balls to completely reorganise our tax system and economy.
Why can we not have a banded flat rate tax (with tax no allowances), do away with NI, integrate the benefits system with the tax system. tax breaks for exporters, VAT registration compulsory for all organisations with T/O above £5,000 but VAT at 12.5%, Corporation tax at 17.5% (with no allowances).
Organisations that pay any emplyee more than say 60 times it's lowest employee, pays an additional 5/10% more in corporation tax, let the shareholders then decide.
We presently have a tax system that is nearly as old as the USA, a benefits system that is so fiendishly complex that no one fully understands it, an economy that rewards importers and deters exporters.
We need a vertically integrated tax and benefits system commensurate with the 21st century.
Sadly, I know that career politicians have no backbone or guts and while ALL politicians will be completely untouched by this recession the rest of us will sink quietly into oblivion, perhaps we should all think about some measure of demonstrating our frustration with our feeble gutless politicos.
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UK Economy in decline - LLoyds take a hit on their share price.
Clearly being the "biggest lender in Britain" has it's downsides...
Fortunately it's only taxpayer who will feel the pain - the bankers have been protected by the Government as they are becoming an endangered minority.
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119. At 1:56pm on 25 Jan 2011, Anglophone wrote:
"It's clear that economic activity is, at best, muted, but to try to hang this small reversal on the effects of government policy that hasn't even come into effect yet is stretching credulity"
So you think (for the public sector workers especially) that the expectation that they will lose their jobs in the new year shouldn't have made any difference to demand?
What planet are you from? Is it Jupiter? - I hear they have a lot of gas on Jupiter.
The snow has made no difference to the retail sector - and the Government's policies had an effect from the day they mentioned them - I mean you're not trying to suggest a Government has to implement a policy in order for it to take effect - are you?
The only reduction in consumption would be items which were non-essentials - and if you want your recovery to be based on the whimsical purchase of 'tat' - then I would suggest it won't last very long!
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Interesting: George Osbourne completely escapes criticism in Stephanie Flanders' blog in spite of some extremely worrying growth figures. Meanwhile, Ed Balls is accused of confusion even though he predicted this outcome months ago.
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118. At 1:56pm on 25 Jan 2011, stennylfc wrote:
'... Both the US and UK are in a death spiral they cannot control as they have lost the ability to use interest rates to control inflation. The situation is only going to get worse as the spivs speculate more on commodities and the spending power of people is reduced even further.'
==========================================================
Spot on!
The only hope they now have is a significant currency devaluation - cheat the lenders if you like.
The bond market will not be pleased, so interest rates will probably rise sooner rather than later. Throw in floating currencies, and I can see a collective race to the bottom developing as other nations try to protect their exports.
Maybe the dollar's days as the reserve currency are numbered.
Maybe the gold standard wasn't that bad after all - at least QE wasn't possible then!
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109. At 1:42pm on 25 Jan 2011, Dempster wrote:
“Because as most of now know, all money is created by someone, somewhere going into debt. And it’s looking like someone, somewhere is no longer that keen.”
We may disagree on some things but I can agree in principle to this. Therefore the only conclusion I can reach is total overall or collapse of the banking system as we know it! We seem to be addicted to ‘growth of money’ for some reason rather than every other type of growth. Are we really that shallow or as the indoctrination been so good?
I came away from this ‘money love’ in 2005/6 and since then I have not had an overdraft or credit since (no I am not bankrupt or won the lottery). Yes I’ve got the FSTv etc whilst paying the mortgage on c33K/annum. I have learnt that you do not need credit and that you only need credit because some one says that you do! In many respects I am partly responsible for the crisis because I refuse to pay towards their shampoo and coffee combo’s. Am I full of my own impotency – yes, because I’ve achieved in the last 5/6 years.
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You simply can't make this up.
Now the snow affected Hornby trains too! - I wonder how Duplo construction did...
http://www.guardian.co.uk/business/marketforceslive/2011/jan/25/hornby-hit-by-snow
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@26
I don't know about anyone else, but the ongoing banking / sovereign debt / [insert crisis here] crises haven't just made me cut back on buying useless tat, they've changed how I think about being part of such a wobbly system in the first place. Christmas and new year were low key, free of pointless cheap tat and for the most part spent just enjoying the company of friends and family, free from worrying about who got the most expensive or shiniest present. I've derived much enjoyment from simple pleasures such as a long walk in the country or curling up with a book. I'm learning to cook using proper ingredients rather than relying on junk, so my food bills and rubbish streams have reduced and my health has benefitted. Doubtless all terrible for the economy, but very beneficial for me as an individual, both physically and mentally. To my mind, that does rather suggest the model itself is fundamentally flawed, regardless of what Osbourne (or Balls, or anyone else) does to tinker with it or how agitated we get about said tinkering, as emotional wellbeing seems to be secondary to the state of the economy, which is surely back to front? I've never been one of the frothing conspiracy loons shouting about the evils of fractional reserve banking or "elites", as the ranting solves nothing and if anything actually undermines any genuine concerns, but I can't help think there is actually a valid point underneath all the swivel eyed shouty stuff. The model is broken and we're starting to see it fall apart. Quite how long it takes and how we react is anyone's guess, but it does seem to be happening. Squabbling over base rates does nothing to address the problem...
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@muggwhump wrote:
"Two weeks of snow isn't going to have that much effect on a whole quarters growth."
Two weeks represents over 15% of the quarter's output. Even if only a tenth of that production was lost, it would easily account, not only for the -0.5% contraction, but even for a small amount of growth. Of course, those two weeks are anything but normal two weeks.
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It seems so silly to rely on one quarters growth figures especially when weather did play an important part.
Not just for retail but hotels restaurants and a myriad of small businesses who experienced cancellations during what should have been their busiest period.
Wasn't the boom in construction during the second quarter of last year put down to a boost after the delays caused by the bad weather last January?
One swallow never makes a summer and it is what will happen not only here but the growing pressures from outside the country that will determine how the Bank of England should adapt its policy to complement the governments tightening of its fiscal policy
Inflation or interest rate rises? Not a lot to choose from.
Personally I loathe the thought of rampant inflation for although it cheers up the markets it destroys everything else including competitiveness and employment.
I hope this government holds their nerve for growth for the sake of it is only a route to creating jobs for migrants until we have a workforce properly trained to take up the slack of a real recovery.
Education and training should be the priority during a downturn with the dumping of as much red tape as possible on potential employers.
There is a long way yet to go.
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What perhaps is even more shocking is how surprised these so-called economists are. What planet are they all living on?
It is hardly surprising what occurred, but only to those who can understand the root of the matter - clearly not politicians and not economists.
To use my oft-used analogy, the economy resembles a brain-dead patient on life support. In the red corner, the consultant believes that the correct remedy is to sustain the respirator (i.e. govt spending, investment, QE etc.) until such time that the patient recovers. Whilst in the yellow/blue corner, the consultant believes that the correct treatment is to turn off the respirator (i.e. stop govt spending programmes), which is keeping the patient comatose.
The problem, which neither side seems to grasp, is that the patient is DEAD! The only question is whether the inevitable death happens sooner (ConDems) or later (Labour).
The ConDems can't seem to grasp that the flaw in their remedy is that it assumes that the private sector can take up the slack without understanding the factors behind private sector growth, namely demand. Consumer demand depends on the public having the means to spend, spend, spend. The problem is that everyone is so indebted that the banks won't lend them anymore, mainly because they know that many of their existing loans are likely to turn toxic at any moment as people start to default.
Like it or not, the Government has kept the wheels turning. Turn off the spending and this is the inevitable result. The most shocking factor is that these figures are before the main cuts have started to filter through come April. Add to this the VAT rise, the out of control fuel, food and clothing rises,and the result will be carnage. Millions of jobs will be lost in both the public and private sectors as businesses go bust and house repossessions snowball. Taxation will fall, and welfare payments will rise, leading to the deficit spinning out of all control.
Though this clueless government will disintegrate, the reality is that no party can solve this problem. It is an international crisis of epic proportions and we are seeing the consequences of the false years of plenty unravelling all around us....
One thing's for sure, it ain't going to be pretty. It's time for people to wake up and smell the coffee.
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134. At 2:34pm on 25 Jan 2011, Philder
The age of excessive tat is certainly drawing to a close.
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How can anybody believe the twaddle from Government about these figures - it ain't the weather - its called a recession. I'm no fan of the Labour Party but I suggest the Coalition take responsibility for their actions. My Grandad always thought that climate change was partly due to the satellites we were sending into space ....... surely this is the same logic? I'm no Economist but I can see what is going on around me - be prepared for more of the same as the Tory medicine takes effect.
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CBI criticisms, 0.5% contraction of the economy, warnings of stagflation, and pending massive cuts to public spending. The last time this happened was err the early 1990's when the Conservatives were in power last time.
The economic tightrope the coalition has been walking just got a little more difficult to cross.
http://extranea.wordpress.com/2011/01/25/cbi-says-no-growth-strategy-and-the-economy-contracts-by-0-5-is-the-coalition-strategy-falling-apart/
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Listening to Ed Balls being interviewed at lunchtime, the lesson from the growth figures for me was that the E, and possibly one of the P, element of a PPE degree from Oxford is possibly not worth what some would have led us to believe.
It has been a dull start to the year weather-wise, so when Martha Kearney really put the interviewer's 'knife' into Big Ed, my schadenfreude meter kicked all the way up to a 50% reading ...
A little of some very welcome 'sunlight'!
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Let us remember what 'GDP growth is -0.5%' actually means. Growth in GDP of -0.5% is equivalent to an annual increase of 4.1% in money terms (the RPI is 4.6%). This is plenty of numerical growth to satisfy the fractional reserve banking system which demands sufficient growth to cover interest charges as money is created at a time when the bank rate is 0.5%.
So there's no problem then?
As oil runs out, we will have to get used to growth being quite small and often negative in real terms.
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"This comment has been referred for further consideration. Explain"
Truth hurts, eh?
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Actually, George Osborne shouldn't be blaming the weather - he should be blaming the Met Office for not warning the government about the snow and cold weather..
Oh, hang on - I think they did - but kept it a secret, apparently...
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111. At 1:43pm on 25 Jan 2011, stennylfc wrote:
Official statistics are 1 in 36 but 5 in 12 is taking the biscuit, which is ironic as it was hob nobs that cost me £3.85.
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I hope that was a twin-pack of chocolate ones, otherwise yo' woz' robbed, man!
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1. At 10:58am on 25 Jan 2011, muggwhump wrote:
Two weeks of snow isn't going to have that much effect on a whole quarters growth...Blaming the weather simply isn't good enough.
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Retail could, of course, be a bigger part of the economy than you realise. Do you remember the barbecue summer that wasn't?
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One quarter GDP figure does make a Double Dip YET! But as we pass out of Darling Land into Osborn's Aridity and Maude's Revolution (what ex CBI Chief calls politics) we are certainly on quick sand. The risk the IMF noted when they said all would work out (fingers crossed) seems to draw nearer.
We were advised by GO there was no Plan B
We are then certainly all in this together apart from the bankers of course.
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@134 Terrific post that hits a few nails on the head.
Use your library for those books before you lose it.
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12. At 11:29am on 25 Jan 2011, BobRocket wrote:
#6 writingsonthewall wrote:
'...especially when we're all eating turnip soup every single day.'
Surely it should be 'neeps and tatties' (given it is the 25th of Jan)
Does anyone know whether the deficit (as a percentage of GDP) has risen or fallen ?
(my money is on us doing an Ireland)
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Oi Bob! I hope that is not my ten quid that you are wagering away, there ...
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Stephanie, One thing's for sure is that you cannot consign the consensus of this blog's contributors to the dustbin. Perhaps George O & Ed B should follow, if not listen to, these.
I try hard not to be a "gloom and doom merchant" but if you really look into the true values and impact on the economy you see balloons inflating and deflating in a very sad manner. I am pleased that certain industries are growing and positively contributing funds to the country but the imbalance is still far from in check. The debts that we have amassed both privately and publicly are truly horrendous. The cuts so far and those announced to the grossly inflated public sector aren't enough based on what we actually earn and produce. (Not what some people would like to hear - especially if you're one of them) Just in case we've forgotten the country's trade deficit remains and debt accumulates. The recovery has to start from exports and other earnings from abroad. This will take quite some time and effort given that we have areas of the world, to focus on, that have double digit growth. This, as fellow contributors well know, wont happen overnight and to predict a "double dip" is as the trendies say " a no-brainer". The magic pill will be either to cut up our max'ed out credit card and hold interest rates or another bout of QE (I know, adding to our debt!) which, either way, will deflate GBP to encourage exports and inflate imports including fuel/energy costs. Diverting funds to producers and asking non-essential goods and services to bide their time will be a tough call! BTW The market in a recession normally defines what is and what is not essential. There may still be hair-cuts all round, who knows?
Whether or not the Fools are involved is becoming academic. They, as others have stated, have abandoned the real world.
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137. At 2:40pm on 25 Jan 2011, DHA wrote
'... the reality is that no party can solve this problem. It is an international crisis of epic proportions and we are seeing the consequences of the false years of plenty unravelling all around us....'
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My concern is that we have left ourselves totally exposed to the great unravelling that is about to happen. Europe, America, China, Asia - all battling debt or inflation. Surely, the level of world trade is bound to decline and here we are - desperate for growth.
I only wish I had more confidence in the determination of the G20 to act decisively.
They will not of course - not until this crisis turns into a CRYsis.
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I have spelt out the reasons for you many times.
a) The government takes a HUGE amount of money OUT of the British economy each year. It either gives it in 'overseas aid' to places like China or India (enjoying huge growth), gives it to the EU (to subsidise other more local competitors) or spends it on foreign goods and services (BMW police cars, Mercedes ambulances, American missiles...) further helping foreign companies competing with us make more profit and invest in improvements in their products.
b) The banks take further money from our business and private customers and concentrate it in the hands of a few already extraordinarily rich individuals (who really needs a 5 million pound income in a single year??) This again reduces investment, reduces competition (makes capital costs too high to enter a market), reduces demand, and encourages companies to leave for countries where capital is cheaper.
c) The commentators such as yourself Stephanie clearly don't make any song and dance about these two obvious and simple to fix issues, quite happy to swallow bull from government blaming the huge contraction in the economy on 2 weeks of snow which didn't prevent 90% of the workforce continuing as normal.
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131. At 2:24pm on 25 Jan 2011, TonyH wrote:
Maybe the gold standard wasn't that bad after all - at least QE wasn't possible then!
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I am not sure everyone would like to be back with the economics, industry, finance and consumerism of the 1960's. But if you wish, get rid of all your debt apart from your mortgage, only buy half the stuff you normally fill the shopping basket with, save up for any other substantial purchases and pay cash, make sure you only go to Blackpool or Cleethorpes for your holiday, driving a Ford Cortina Mk1 on A roads at 60 mph.
It was still possible to have inflation and devalue a currency, even back then.
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I've never how you can survive on the "Service Industry". It is all reminiscent of the situation where "they all earn a precarious living taking in each other's washing".
David Butland
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130. At 2:23pm on 25 Jan 2011, Damian wrote:
Interesting: George Osbourne completely escapes criticism in Stephanie Flanders' blog in spite of some extremely worrying growth figures. Meanwhile, Ed Balls is accused of confusion even though he predicted this outcome months ago.
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Er, months ago, Ed Balls expected to be in Government. Ed performed about as well as his wife did in her first day as Home Secretary.
Don't panic! These growth figures are i) just one quarter, ii) may be adjusted up or down, iii) the Coalition's cuts haven't taken effect yet, and, iv) we have lots of other economic and fiscal problems to worry about.
The man with the really big problem is Ed Miliband.
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• 142. At 3:00pm on 25 Jan 2011, Chris wrote:
Let us remember what 'GDP growth is -0.5%' actually means. Growth in GDP of -0.5% is equivalent to an annual increase of 4.1% in money terms (the RPI is 4.6%). This is plenty of numerical growth to satisfy the fractional reserve banking system which demands sufficient growth to cover interest charges as money is created at a time when the bank rate is 0.5%.
So there's no problem then?
……………
? Not sure how you come to that conclusion. With our debt based monetary system (courtesy of FRB) , the amount of debt has to increase every year to service the interest on previously issued debt, and if it doesn’t then there is simply not enough money in the economy to service it and you get defaults which leads to periodic banking collapse. The level of debt being created has shrunk massively recently according to the figures of the BoE (see Dempster’s post), and is barely increasing as people and businesses pay off debt.
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Some thirty years ago part of my responsibility was to meet with a senior figure of what was then the Midland Bank. At one such meeting I had made a 'customer complaint'. The response was 'don't ever get the impression that this or any bank is there for the customer's interests, they are there purely for their own interests'. I don't suppose there has been any change in that attitude since then.
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Blaming weather or in this case an act of god! is no more than a form or denial, or not wanting to take responsibility for there own failings. Quote the term " a poor engineer blames his tools."
I wonder when politicians will ever accept responsibility for making mistakes, even if not giving enough time to think of other ways to get us out of this big mess, that is just becoming much bigger.
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I think we need to analyse the figures in more detail..ie region by
region and especially Scotland, Northern Ireland..where most snow fell.
..........
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When the Torydems got in I thought it would not take long for them to undo the good work Gord'n'Ali had done in ending a recession.
And then I thought I might have been unfair, that the British economy would steam on regardless of the negativity.
I thought we were turning the corner.
Now I think the Tory doom and gloom brigade are starting to get to us.
If you are in a job you are made to feel overpaid and in danger of losing it.
If you are in healthcare, education, social services, the armed forces, financial services , fire,police and civil services,the construction sector ....you name it, we are all pariahs.
If you are out of work then forget about it.
If you run a business then tough luck if the public sector is your biggest client.
If you are an immigrant you are not welcome.
If you are a student get lost.
If you are anybody other than a Torydem then nothing you think, say,or do matters one iota .....you are a nobody.
We are all nobodies, and Mr Nobody always gets the blame in Torydemland.
It's time Mr Nobody hit back.
Let's not let this lot of hamfisted vandalistic doommongers talk us down permanently.
We the pariahs deserve better.
Gordon Brown is looking a lot better in retrospect now than he ever did!
Get some much needed liquidity back into the lenders.
STOP TREATING 2011 LIKE IT WAS 2006.
QE another £200bln before we collapse!
Ditch dogmatic! Be pragmatic!
Frazzle Basel! We need our banks to grow and prosper ,not to be bashed and made even more emaciated.
Come on Britain, onward-march!
RICH,POOR,WAGED, UNWAGED, WHITE,BLACK, MALE, FEMALE, LBGTV,RIGHT,LEFT, YOUNG,OLD,ABLE AND DISABLED ..
ALL OF US .....EVERY SINGLE ONE OF US, 62 MILLION LOST SOULS ......
I KNOW WE CAN DO IT .....
WE ARE NOT GOING TO LET THE COALITION DRAG OUR BRILLIANT COUNTRY DOWN !
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If it's all down to the weather then I'd tend to listen to my mother's wise words. It's those sputniks. Which can only mean it's those pesky Russians. Yes they're to blame.
Perhaps it's time to prepare an aircraft carrier.
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@134 - a great post. Most people haven't cottoned on to this yet. So what if we have less money, just use it more wisely. People spend too much time working, in order to buy things they don't really need. It's all a bit pointless. I'm currently living in Bangkok, where the minimum wage is £4.20 a day. Yes, a day. And people are still much more happy than people in the uk, for the simple reason that they value the things that are important in life - friends and family. It is much more fan having a cheap meal and spending quality time with friends and family than working 60 hours a week to get the latest gadget. People need to take a real look at their lives. The recession could be a blessing in disguise.
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"Economy destroyed by the wrong kind of snow."
Oh, well done George. Keep up the good work.
It's remarkable, isn't it, that almost everyone *except* the bingo-chancellor at No 10 could see this coming.
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132. At 2:25pm on 25 Jan 2011, common_man_123 wrote:
109. At 1:42pm on 25 Jan 2011, Dempster wrote:
“Because as most of now know, all money is created by someone, somewhere going into debt. And it’s looking like someone, somewhere is no longer that keen.”
We may disagree on some things but I can agree in principle to this. Therefore the only conclusion I can reach is total overall or collapse of the banking system as we know it! We seem to be addicted to ‘growth of money’ for some reason rather than every other type of growth. Are we really that shallow or as the indoctrination been so good?
..............
Is it any surprise when disposal incomes have been eroding in real terms over that last 30 years, and heavy propaganda (advertising) and been used to convince the population that to borrow is the way to have what the other person has, in a endless spiral of materialism/consumerism in order to generate big profits for business, based on a supply based rather than demand based economy. The reality is we have hit a point of “peak credit” or peak debt and disposal income is being eroded by inflation. Therefore no growth, requiring businesses to shed jobs to increase profits, leading to unemployment and less growth……… Now enter the death spiral. Greece, and Ireland today us tomorrow. It’s 1930s all over again, but the figures this time are way worse in terms of total (private public) debt. Oh dear.
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(1) Snowflake economy or just this lot's sledgehammer? (2) Remember the tweedledums' irresponsible summer of threats about the spending review? Threatening business and the consumer can destroy confidence ahead of irresponsible measures. (3) "As I noted at the time, the fact that the bad snow came so close to Christmas meant there was a quite a strong possibility that the short-term loss in sales on the High Street - and online - would not be recouped. If you don't buy a Christmas present before December 25th, there's a fairly good chance you won't buy it at all." Stef - have you really ever tried this excuse with your family on Christmas Day?
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#40, #41 and #134
Thanks for the responses.
As I suspected, the weather had little to do with it.
It does seem silly, and makes me ask, could the UK be kept in recession just by poor weather?
What chance of heavy snow in February and severe flooding in June?
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@160 - what utter drivel.
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WOTW, Dempster, JFH you are all spot on. Over the medium term (say a decade period at a time) growth is over. It was based initially on us being able to exploit very cheap energy from fossil fuels to do loads of cheap work for us. We tried to keep this going by outsourcing to cheap labour cost economies, and really drew out the dregs of it with a credit (debt) boom.
Now we have to pay the piper but the trouble is our future real incomes are declining due to over population and over exploitation of all manner of natural resources.
Therefore we have to get used to less tat, more basic manual labour, less traveling, and generally a more localised and smaller economy.
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#138 WOTW
Perhaps applying a stigma to imported tat is internationally more acceptable than import tariffs - as some have suggested.
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Oi you lot, haven't you got work to do, whilst you still have a job to go to.
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Well the banks seem to doubt it was just the weather. One major high street name is so worried they are about to pull their entire student credit line.
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As much as I loathe Ed Balls with a passion - he is a very good 'anti-osbourne'.
"don't blame the weather George, get a plan B and change direction"
Ed may be a loony, but at least he know Economics. George is a loony and knows nothing about Economics - he's treating the deficit like it's his credit card bill!
When do we start the "war on weather" - it seems this is attacking our civilised society with it's snow insurgents and destroying our liberty with it's "rainy days" - and I also hear it causes burn damage to thousands of Scotsmen in the summer (sorry Scotsman)
Listen to Vince Cable on the BBC - "Is there a plan B Vince - or not?"
Get out Vince, get out now - you're a rubbish liar, leave it to the other professionals and go back to telling the truth like you used to before you became part of the system.
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.....Cameron says "they won't be blown off course" - I think that nasty weather has different ideas....
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153. At 3:20pm on 25 Jan 2011, Up2snuff wrote:
131. At 2:24pm on 25 Jan 2011, TonyH wrote:
Maybe the gold standard wasn't that bad after all - at least QE wasn't possible then!
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I am not sure everyone would like to be back with the economics, industry, finance and consumerism of the 1960's. But if you wish, get rid of all your debt apart from your mortgage, only buy half the stuff you normally fill the shopping basket with, save up for any other substantial purchases and pay cash, make sure you only go to Blackpool or Cleethorpes for your holiday, driving a Ford Cortina Mk1 on A roads at 60 mph.
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Hang on - who said anything about a complete regression of lifestyle?
I'm just anticipating what is about to happen when all this QE unwinds.
Do me a favour. Check out the following article and let me have your views. The link is:-
http://www.thedailycrux.com/content/6719/Euro/rss
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@3. At 11:00am on 25 Jan 2011, Dempster wrote:
But surely, there's the weather to consider!
Could be a dry summer approaching. Will it affect the price of champagne, caviar and Maseratis. I bet someone else's tenner that it doesn't.
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103. At 1:30pm on 25 Jan 2011, SoxSexSax wrote:
This comment was removed because the moderators found it broke the House Rules.
LOOOOOOOOOOOOOOOOOL
Cowardly BBC...
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170. At 4:01pm on 25 Jan 2011, Glanwy wrote:
Oi you lot, haven't you got work to do, whilst you still have a job to go to.
================================================
Do you honestly think we do this for PLEASURE!!!
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26. At 11:57am on 25 Jan 2011, newblogger wrote:
Stephanie,
Can I ask fellow posters if anyone cut back on Xmas spending because of the weather, or because money is a bit tight?
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Not one bit. In fact i probably had my most expensive Christmas to date.
But then again I'm 23 with a good job in an industry completely unaffected by the economic mess, no kids etc. So I was never likely to.
Also, I just dont buy the "oh it was the snow" routine. I live in Newcastle where we had some of the worst of the weather, and for the longest period of time. At no point was i prevented from going out and purchasing christmas presents.
We had feet of snow and things kept moving. Lots of snow is inevitably going to have a negative effect on the construction industry, but the service sector? Do me a favour love! People weren't spending due to job losses, the threat of job losses and genuine fear of what lies ahead with the ConDem's disasterous approach to almost everything.
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Back in 2007 the CBI said a one day national holiday would cost about £6 billion in lost production. Would it not be best for this nation, so loved by the royal family, if they said they would have a quiet wedding in April and no national holiday? (Yes I know the government decides such things but you know what I mean.)
A neigbour (middle management) said to me the other day that he would be happy to take a %10 pay cut rather than loose his job. That is the real world most of us live in. We are the ones that are 'in this together'. How many of our leaders, or the royal family, fear the loss of their jobs, the loss of their homes and the loss of their self repect?
We may not be at war but we are in real trouble.
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164. At 3:43pm on 25 Jan 2011, Averagejoe wrote:
“Is it any surprise when disposal incomes have been eroding in real terms over that last 30 years, and heavy propaganda (advertising) and been used to convince the population that to borrow is the way to have what the other person has, in a endless spiral of materialism/consumerism in order to generate big profits for business, based on a supply based rather than demand based economy. The reality is we have hit a point of “peak credit” or peak debt and disposal income is being eroded by inflation…”
I am with you up to this point but not with:
“Therefore no growth, requiring businesses to shed jobs to increase profits, leading to unemployment and less growth”
Having said that you understand the propaganda/indoctrination you forget about it and revert back to abba ‘money, money, money’? The trained manager or employer will try not to go down the route of shedding labour as this is an asset that is difficult to replace. What generally happens is that a company goes to minimum stock levels and where possible introduces JIT (just in time). It is time to develop the workforce and introduce diversity, a multifunctional/multitasked workforce is a real advantage when the tied changes.
“Now enter the death spiral. Greece, and Ireland today us tomorrow. It’s 1930s all over again, but the figures this time are way worse in terms of total (private public) debt. Oh dear.”
You may be correct or you may not be correct? I wasn’t about in the 1930’s (my kids will tell you I was) but I was in the 1970’s and it feels very similar. You could offer the similarities between 1930 and 2008 in that they were both bank led. Where one could put the argument forward that the 1970’s were worker led.
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After the focuss on the Euro area and many UK commentators being happy with themselves not being a part of it I as Dutch citizen cant help to laugh at all of these people. The structural problems of the UK are much larger than like for example Germany and the Netherlands. The UK economy is already shrinking and that is even before the enormous cutbacks that still have to follow. Just brace yourselves because it is going to be much worse.
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Steph,
How can your update be at 1817?
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These GDP figures are almost meaningless - the growth fuelled by borrowing is just a mirage. Until we stop pluging further into debt both as public and private there is no growth.
The only indicators that should matter now are defecit/debt (balanced/zero) - balance of payments (balanced) - RPI - and unemployment/underemployment (zero)
GDP growth no longer matters what matters is are we reducing our indebtedness or not? Are we becoming more or less reliant on imports as a nation or not? And are we giving everyone the chance of employment or not?
The only posistive is the continued gropwth in manufacturing/exports admittedly from a low base. Although this is nothing to do with politicians - can the Coalition build on this - I hope so, but I am not holding my breath.
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You asked for comments about ludicrously high growth rates cited for construction earlier last year. Don't know what reactions you got, but I suspect something is going on here in the latest figures to do with those earlier vastly over-inflated growth figures. High-placed family contact in the industry told me at Christmas that 'things are going fairly well- not fantastic, just reasonable'
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"But, later, Mr Balls asserts that "now we are seeing the first signs of what the Conservative-led government's decisions are having on the economy". He does not seem to be able to decide whether the economy is weak as a result of the coalition's decisions, or in anticipation of them."
Doh Stephanie! - how about BOTH!!!
We have had our incomes reduced through inflation and pay cuts.
We've had our purchasing power reduced through currency debasement
We've been told everything that is currently 'free' is not going to be soon
We've been told to prepare to auserity.
Is it so difficult to see why the reason is clearly both? It's not a criticism of Ballsy - it's a failure to understand people in general.
They're skint, they're scared and now their losing their faith in the people they desperately hope will save them.
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#33 Writingsonthewall - "Late - but not 'unspent' - therefore no detrimental effect to the UK Economy."
Actually, I bet many people (myself included) requested refunds from Internet retailers during December because goods weren't delivered by The Royal Mail, no figures at hand but retailers with a large online presence (particularly those which relay on the Royal Fail, eg Amazon) may be able to shed some light on the number of refunds offered in December because of the mail not getting through. I bet it's quite a bit higher than normal.
Clearly the weather would have a huge effect on the figures, the weeks where the weather hit were the peak trading period for retailers (& knock on services such as transport), many retailers take in a huge percentgae of their annual turnover in that 2 week period, why else would every retailer describe Christmas as 'The key trading period'.
If the weather had hit in early October, then it's effect would have been offset because people would still have gone out and bought their gifts. As it is, many people will have thought they'll just put some cash in a card this year instead. If so, then there may be some decent activity this month with people spending that said cash (unless the cards were posted of course).
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182. At 4:38pm on 25 Jan 2011, newblogger wrote:
"Steph,
How can your update be at 1817?"
It's the YEAR! - It's an economic update for 1817 - next Stephanie will comment on the appointment of James Munroe as president and the signing of the Rush–Bagot treaty to reduce militarization in the great lakes area!
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168. At 3:54pm on 25 Jan 2011, Sage_of_Cromerarrh wrote:
Yep I agree with that - we can't expect the rest of the world to keep us. Time to start conrtibuting again.
A bit less of everything need not be so bad - maybe more people engaed in growing, fixing, repairing thinks here in the UK could help balance our distorted import dependent economy.
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#182
Snow in the wires of course!
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177. At 4:23pm on 25 Jan 2011, TonyH wrote:
"170. At 4:01pm on 25 Jan 2011, Glanwy wrote:
Oi you lot, haven't you got work to do, whilst you still have a job to go to.
================================================
Do you honestly think we do this for PLEASURE!!!"
Crikey - if it weren't for this economic crisis then you wouldn't even know who I am!
I only started this blogging lark when I saw the total cumberbuggun being spouted by the lassez faire media.
I'm doing this for my fellow man - work can wait.....and it's all going to come crashing down soon anyway - no point in putting too much effort into it.
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What a namby pamby people the British are. I managed to fight my way to the shops through 5 inch snowdrifts while the rest of the country couldn't make it, well, that's how it seems If George is telling the truth and I see no reason to doubt him... (chortle chortle)
What's next George, leaves on the (credit) line?
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Why are GDP figures not indexed similar to RPI so that we can see the actual figures over time.
How can you actually measure growth after a decline if this is not employed.
Vat receipts are actually down even after the last 2.5%VAT (17%) increase. Is this due to Zero rate on food. If this is the case the economy is actually shrinking at an even more alarming rate.
500,000 did not get away on the winter break due to flights being cancelled so the money they spent in the UK should have produced a 1% uplift.
Only good news is that all bad news will be delayed an hour in real terms if we move to CET.
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190. At 4:56pm on 25 Jan 2011, writingsonthewall wrote:
177. At 4:23pm on 25 Jan 2011, TonyH wrote:
"170. At 4:01pm on 25 Jan 2011, Glanwy wrote:
Oi you lot, haven't you got work to do, whilst you still have a job to go to.
================================================
Do you honestly think we do this for PLEASURE!!!"
Crikey - if it weren't for this economic crisis then you wouldn't even know who I am!
I only started this blogging lark when I saw the total cumberbuggun being spouted by the lassez faire media.
I'm doing this for my fellow man - work can wait.....and it's all going to come crashing down soon anyway - no point in putting too much effort into it.
==============================================================
And I have to say that, although I sometimes disagree with your more strident comments - it would have been my loss!
By the way, I can thoroughly recommend the following article:-
http://www.thedailycrux.com/content/6719/Euro/rss
Well ... I never!
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Ed Balls' point is that the government have killed confidence in the economy by the VAT rise and redundancies due to spending cuts. So even before these measures take effect, people have stopped spending, resulting in a falling GDP.
Makes perfect sense to me. If your job might disappear, then you wouldn't wait till it does to stop spending, would you?
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I suggest one quarters figures are not particularly significant unless there is a lot of air time to fill. The government had to bring spending back and whilst it might hurt a lot it is conceptually relatively straight forward, although like a tanker it might not be immediate. Achieving growth is a different kettle of fish. People have to be persuaded and willing and whilst some export areas might do well I do not see the critical mass to turn things round. We are so dreadfully uncompetative because of the costs that have to be borne by business that we will only go forward with heavy capital investment which could mean any growth comes with a lower people requiremnt.
I do not understand how we can go on with such massive trade/service deficits unless overseas companies continue to buy into our infrastructure or lend the money back to us until the dam bursts.
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SF say 'Once again, the consensus has been consigned to the dustbin. We knew that the growth rate in last quarter of 2010 would be harder than usual to get right: as it turned out, none of the leading City economists even came close.'
Welcome to the department of no surprises. The 'economic' modelling/method/calculations,chicken entrails, whatever is used by 'economists' like leading City economists and dare say it, SF is nonsense. We know this because not only did these methods fail to predict this contraction they failed to predict the original crash and burn two and a half years ago.
Why am I not surprised? Well as shown in this article GDP is used as an indicator of real economic activity. No it isn't. Its simply a measure of churn in the economy. No account is taken of whether the churn is useful, creates value, improves lives etc. Other bloggers have asked how having more haircuts, eating out more, going to shopping centres to buy stuff you don't need can be a measure of good economic activity. They are right, you are right GDP is a useless measure. A small child can see this. (I remember being that small child rather longer ago that I would wish and listening to politicians taking about GDP and being bemused as to why it mattered then)
Time to get some new economists who aren't wedded to this old rubbish and look at the real situation and are measuring real value. Have a look at the New Economics Institute or the New Economics Foundation.
If you are wondering why the politicians don't what to talk about this and cling to the old business as usual, the reason is that the real state of the global economy is just to scary for them to contemplate.
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Why do we live in an economy where forced growth is the norm, and it's such a disaster if it does not grow? The reason is to do with how money is created from debt, and this requires permenant growth to sustain the system. Of course, save for manipulation of the statistics, this eventually collides with the finite resources that an economy needs in order to grow.
Yet not many people would blame the process of money being created out of debt and limited resources as the true reasons why this is such a problem, instead just religiously accepting that the economy must grow.
When will economists in particular wake up to the fact that our money system is the underlying problem.
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Most of us know that GDP statistics are nonsense ... it may also under some circumstances ... wait for it... be good news if GDP is lower/reducing e.g.
-reclycling more?
-sucking in less imports?
-buying more British goods and services?
-using more green energy saving equipment?
-producing more goods and services in the UK
-being more efficient at distribution
So as economists, we need to look at 'output' as well as monetary transactions to get a clearer picture.
Remember, ... 'GDP' is fuel for politicians' twaddle ... comparative living and other indices are a better indication of how the UK is doing in terms of us ...
Does the UK have any real rationale for priority of its economic indicators?
Unemployment?
Net disposable incomes?
Inflation?
Debt/deficit?
Balance of Payments?
Economically inactive?
No of people earning below average wages as a % of working population?
Perhaps tracking the above (or similar) in a weighted index would be more meaningful than GDP 'throw in the kitchen sink' twaddle?
So when GDP is increasing and the other measures are getting worse (as happened in the preceding quarter 2) - How do we interpret that as a performance issue.
This is too much piddling over small figures as GDP is not that accurate an 'indicator' of anything but ... GDP.
How does the ONS adjust GDP for 'inflation' ... has anyone got hold of that one yet ... and plotted the trend line?
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'Dont worry.' Not my words, but those of former nukemeister Saint Vince, curiously resurrected on the release date of the gdp first cut figures by Cleggy, visiting a bicycle factory. ( A real 'walk on the wild side' for those racy LibDems. ) So that's all right then.
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Growth / Contraction
Example 1 (exagerated)
GDP = 100
Year 1 ..............25% contraction = 75
Year 2 ..............33% Growth = 100
Back to square 1. Difference is that the ECONOMIST will report 8% YOY growth.
Example 2(exagerated)
GDP = 100
Year 1 ..............33% contraction = 67
Year 2 ..............25% Growth = 84
What does the ECONOMIST report 8% YOY contraction or actual 16% contraction.
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Stephanie
I seem to recall that you said that the last quarter figures were stronger because of robust construction figures. I also recall that these may have been due to changes in the methods used. Is there any evidence that todays figures could be due to any methodological changes?
Could different methods not cope so well with the effects of the bad weather effectively exaggerating its effect?
It would be great to hear your thoughts on this.
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26. At 11:57am on 25 Jan 2011, newblogger wrote:
Can I ask fellow posters if anyone cut back on Xmas spending because of the weather, or because money is a bit tight?
==========================
Of course Xmas spending was cut back because of the weather. As it was dangerous Mrs W did not drive to work for 5 days but worked from home , lost expenditure approx 50quid.
It was freezing and miserable so we didn't go shopping but tucked into the safety stores of food we have - this will be replaced but not until the first quarter.
As it was freezing we skipped two Xmas meals out because it was not safe for us or friends to travel as planned - probably 300 quid or more all told not spent at restuarants.
Having less time to shop for Xmas we did not make make more than one trip and spend considerably less than previous years - fewer small things we saw in teh trips to add - may be 50 -100 quid not spent.
I reckon that probably 500 quid I didn't spend that I was expecting to - most for sure will not be made up in the firszt quarter.
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I also take the view of #198, nautonier, that GDP is a wobbly statistic whose foundation is hopelessly unscientific regardless of all the claims of the ONS that their collection and analysis of data is done as scientifically as possible.
Growth? It does not do credit to ANY economist, or even journalist, to talk about Growth and GDP as if they were all that mattered. It is bad enough that thug-stupid politicians, and slightly more educated taught-by-the-book economists like Vince Cable, give credence to this monthly ritual of nonsense attended to by all the overpaid financial and economic analysts in The City, The Docklands, and all the Corporations up and down the land.
A government, and its economists, and its businesses, and their economists, should be focussing on long term trading potential. Growth figures that reflect a lot of harassed housewives and sports-addled husbands who have gone shopping for crap that ends up in Landfill after 2 months? They are nothing.
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give everybody 1 orange and vince cable an apple as well.
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111. At 1:43pm on 25 Jan 2011, stennylfc:-
Don't worry about a few duff coins. Anything passes for legal tender nowadays.
You want a problem? - here's a problem:-
http://www.thedailycrux.com/content/6719/Euro/rss
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#120 VAT does not work like that. Simple example is a UK company makes something (there are some). It sources its raw materials from UK suppliers. So far the VAT to HMRC will not increase at all because the suppliers add VAT to their invoices and manufacturer reclaims the VAT as input tax from HMRC. There is only an increase if UK company then supplies to a UK consumer (businesses would simply reclaim the VAT). So a 16.67% increase in the VAT rate (from 15% to 17.5%) produces a far lower increase in the VAT take to HMRC. I suspect that the increase in VAT receipts by 9% does in fact show an increase in economic activity.
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WOTW: velocity of money is important to economic activity. It is very basic. If you keep your £10 under the mattress and do nothing with it, your £10 is economically inert. If you spent it at the corner shop you are generating economic activity. The owner of the corner shop then pays supplier for new stock using your £10 generates more economic activity as the stock has to be produced.
Not saying that velocity of money is the be all and end of all of monetary theory but it is an important component - the point is that a small amount of money circulating quickly should have the same effect as a large amount of cash circulating slowly.(I am sure there is some formula to explain it all in terms that nobody understands). Of course when you have a large volume circulating quickly disaster strikes.
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#191....hay i battled thro 5.17 inches of snow,at a constant velocity of 3.87 mph, dodging vat attacks, and ,an all dancing vince cable ,and, those dreadfull unemployed types...dont you call me mamby pamby....!!!!
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Whilst it is true that most of the government's cuts and tax rises haven't yet happened it would be untrue to assume that this means that the government isn't responsible for at least part of these figures. Public sector cuts were announced in October and Council budget cuts announced not long after.
The majority of the public sector workers I know (and likely private sector workers who do work for the public sector) have been living with the sword of Damocles hanging over their heads ever since, not knowing whether we'll have jobs or not in the coming months. As a result we've all cut our spending back to the minimum. In December I probably spent a third of what I would normally have done in any other Christmas and that had nothing at all to do with snow.
So yes the cuts might not have happened yet but the fear and uncertainty those cuts and the rhetoric coming from government have caused for 6 million+ public sector and affiliated private sector workers will definitely have had an impact.
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No country has ever taxed its way to prosperity.
Even Henry Ford realised that if you don't put money in people's pockets there will be nobody to buy your stuff.
The financial engineering of the past two decades may have given everybody credit cards, which temporarily allowed people to spend before they had any income. However those profits are now booked.
People need income so they can pay off what they overspent yesterday, yet still have enough left to consume today's output.
You don't do that by slamming up taxes, cutting public spending and leaving zombie banks walking around.
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hey osbourne cable and balls and those brilliant economists,i didnt spend at xmas because im skint not because of 1 snowflake. thank you.
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In 1997 New Labour came to power based using nothing but Spin, and facade on its policies, basically written on postage stamp, but after 13 years in power nothng changed. Instead we had typical OLD Labour policies based on Taxing (everything that moved) and Spending (every penny we had).
Firstly they sold off the Gold Reserves for next to nothing, Increased Taxes (ten fold), and in all their 13 years SPENT more than their Tax Revenue. Hence why we are now £1 Trillion ( yes One Trillion Pounds )in debt, and have a Budget Deficit of £160 Billion.
Labour - Ed Balls warns that the VAT rise and the speed and scale of the planned cuts will make growth less not more likely is the reason why Economic Growth slowed by 0.50% i nthe last quarter, and his answer "SPEND MORE".
I would like Ed Balls to explain how any country can making Spending Committment like her clearly wants to?, when there is nothing in the Bank, and the high Interests Payments we are making on the Debt they created and left behind means we cannot spend.
All normal person, and people wihh oommon sensible (Conservatives) clearly would spend what they got, while making in roads into the Mountain of Debt £ 1 Trillion left behind by Labour (Public Spending Cuts).
Look back in history at Labour andd how they left us in debt back in 1979 to the IMF, and if Conservatives abandon the Spending Cuts and Tax Rises like he clearly wants, based on 1 quarter poor figures. Just proves how irresponsible Labour tax policies are, and by spening more would leave us in dire starits just like Countires, Greece, Ireland, Portugal, Spain, and with Italy and Belgium going down the same road.
It is obvious to any person with common sense looking at the figures the weather had a huge effect on the figures (coldest weather for over 100 years, and longest period of snow fall over period), the weeks where the weather hit were the peak trading period for retailers. This was a period where many retailers take a large percentgae of their annual turnover in December, why else would every retailer describe Christmas as the most impportant periof trading.
I know also, that many of my friends, and family within the consturction industry did not have work in December due to the bad weather, this was not local to any one area, but the whole country. So, apart from construction it affected other part of inductry, and any change of recovery was put on "ICE".
So, lets igore the Labour Spin, and Ed Balls hot air, and concentrate on getting this country back to where it belongs 4th in the league, and not lanqueshing in 20th under Labour. Let the Conservatives get on with the job of spending cuts which needs to happen, and tax rises, Yes it will be painful for everyone - but what altenrtaive is there other than more DEBT under Labour.
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hello moderators
you seem to have missed 196 and 197
or am I missing something
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It seems to me that the electorate (voting Lab and Lib Dem) had it right, cutting gradually. What they got was the Tory larger cuts, with a LD volte farce (sic). 2011 looks like being a rough ride.
I'm going to carry on paying off (mortgage) debt, then start on my kids' (university) debt.
P.S. For those on here that want to discuss ONS inflation measures, and comparing them to bread prices, it does break down its basket between the various sectors. Food, for example, is 5.7% RPI-X, in turn split:
Bread and cereals 6.5 (not 50%!)
Meat 3.3
Fish 9.0
Milk, cheese and eggs 2.0
Oils and fats 11.0
Fruit 8.6
Vegetables including potatoes and tubers 8.0
Sugar, jam, syrups, chocolate and confectionery 6.8
Food products (nec) 2.5
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It never ceases to amaze me that the events that caused the recession and the events that are needed to sustain a recovery seem so un-related.
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Not quite on this point, but can anyone tell me whether I can expect a lower council tax when local government is doing away with most of the services I'm supposed to be paying for?
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I wonder if the ONS has been "asked" to produce this bad news just to bring down the pound a little and ease the pressure on the MPC to raise the interest rate. It would explain how all the "experts" got their forecasts so wrong.
Maybe we will see an upward revision in the coming months.
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211. At 6:43pm on 25 Jan 2011, Capricorn1 wrote:
I would like Ed Balls to explain how any country can making Spending Committment like her clearly wants to?, when there is nothing in the Bank
They don't need a bank. They just credit the suppliers and public sector workers bank accounts.
Perhaps not your kind of common sense but true nevertheless.
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Dear Steph - if I may be so familiar - always interested in your thoughts.
One of the implications of the latest figures is the confirmation that the recovery will be very uneven, in terms of industrial sectors, geographical areas, and the situation of individuals.
The problem is that the government has no coherent ideas about how to re-balance or mitigate these inequalities that will clearly persist for several years.
The upshot will be that the distribution of pain will be unfairly felt by some more than others (and I include sectors of industry in this).
The failure to ameliorate the situation of those suffering most is why this government isn't governing, but merely imposing dogma of the most limited (and limiting) type. The seemingly determined position of driving this through will lead to a bigger chance of disruption, whether that is economic or social, than a more considered and flexible approach would do.
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#211 Thanks for taking the time too come on here today George, you must have been extremely busy, how was skiing by the way?
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Whow Stephanie what I find shocking is the pro gvt bias in your reporting. You have all the qualifications and excuses lined up on gvts behalf to explain away the negative growth rate but in stark contrast adopt a blatantly aggressive tone towards Labour.
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MODERATORS
pls take a look at #196 and #197 you seem to have missed them
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The CBI and Andrew Sentance were calling for significant interest rises only weeks ago.
Do they not walk the streets of the uk and realise how slow things are out there. The mere mention of interest rate rises combined with the threat of job losses will dramatically curb business and domestic spending and investing.
I beleive this effect had started in the lead up to Christmas.
This inflation spike we are experiencing is due to fuel prices and taxes and duties compounding. Once these are out of the system we will be speaking of deflation not inflation.
Please all do not forget the lagged effect of unemployment.
Unless the MPC come out and say there will not be base rate rises for an extended period to undo the damage as above i fear we will be in for a year of stagflation followed by a spike of very damaging deflation.
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"This is what Nida Ali, economic adviser to the Ernst & Young ITEM Club, had to say about today's public finance figures:
Tax receipts seem to be growing nicely and it's interesting to see that VAT receipts were up almost 9% on last December. Though part of this reflects the higher VAT rate (17.5% against 15%), it also suggests greater consumer activity in December than other sources have reported."
Good to see that postive spin is still around. By my reckoning the VAT rate change should have increased VAT receipts by 16.6%, so a 9% increase represents a fall of 7.6% in consumer activity before inflation is taken into account.
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MODERATOR, MODERATOR
what do i NEED TO DO TO STOP YOU APPROVING THESE MESSAGES AND DOING THE REAL ONES AT #196 AND #197
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122. At 2:04pm on 25 Jan 2011, Dempster wrote:
Not so the really good fake £20 notes that are doing the rounds.
So far I've had three from the bank.
But many stores are now checking carefully and declining to accept them.
It's the embossed silver strip (alternate head of Adam Smith and 20) on the left hand of the front face which is the point to check.
===========================
I'm up in Scotland so very rarely get to see an English note but I'll watch out for that when I next get one..thanks. The pound coins are everywhere now I know what to look for, found another one amongst my twelve coins so now at 50% fakes in 3 days change. SShhhhh don't tell anybody though, I wouldn't want to cause a crisis that causes sterling to be dumped.
For the record it started snowing in Central Scotland at the end of November and only melted about 10th Jan. It was 17 inches deep at one point with icicles 4 feet long hanging off most gutters. Only the one day of snow that cost the Scottish transport minister his job had any effect, 10 inches on top of 6 inches but it lasted a day while they cleared the motorways of abandoned cars and it was back to normal.
Hardly any time was lost probably because Scotland copes better than England with bad weather. However most people I know spent less because they have less to spend, and not because of the weather.
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Wake up, please, moderators- you haven't dealt with 196 and 197.
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While we're all watching the football a question for your return.
Where do we go when this lot have failed. We already have the previous failures returning to the wings - Balls(x2) Burns etc.
All will have proved not up to the job of running a biscuit factory.
Voting is just not possible.
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Re: Pam Laurance 'The Story of Stuff'
Thanks for the link Pam, I greatly enjoyed the film (and the makers likeable presentation) and will be watching the several others on there also. It's a phrase we all know well but her use of 'government by the people, for the people' did make me think about how simliar, ironically, the USA and the old Soviet Union are. Both forged in revolutionary struggles against oppressive masters and both failing so dismally to live up to the high and laudable ideals stated at their inception. Someone should really write an 'Animal Farm' for the USA as there (and here) government is most certainly not operating in the interests of its people.
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Incapacity benefit claimants have had their benefits taken away (I was one of them and dont even qualify for jobseekers allowance since my wife works part-time) and now have no money so spending is bound to decrease.
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> 211. At 6:43pm on 25 Jan 2011, Capricorn1 wrote:
In 1997 New Labour came to power based using nothing but Spin, and facade on its policies, basically written on postage stamp, but after 13 years in power nothng changed.
Mostly true, can't really argue with that one.
Blair started off ok for a little while, then petered out. Roughly around the time he became a major shareholder in the Carlyle group as it happens (look it up).
Instead we had typical OLD Labour
Nonsense, if we had old Labour policies we'd probably have been in a far stronger situation now than we are. We'd have done things like reduce the gap between the richest and poorest (the opposite happened), reveresed the dumbest 'reforms' of the Thatcher and Major governments (they didn't) and invested heavily in manufaturing and research rather than relying on the finance industry to power our economy.
policies based on Taxing (everything that moved) and Spending (every penny we had).
Firstly they sold off the Gold Reserves for next to nothing,
Can't argue there, that was a dumb move. Never sell anything at a low point unless you are without any alternative. I fully expect to one day see a revelation saying the advisor who recommnded this worked for some group that made a killing off of it...
Increased Taxes (ten fold),
Total balderdash! Unless the Tories were operating in an economy where no one was taxed more than 10% then such a statement is mathematically impossible. In fact I had my tax bill reduced under Brown- something I complained about on the BBC forums as I thought it a damned cheek to see my tax bill go down whilst friends on half my wage saw theirs go up!
and in all their 13 years SPENT more than their Tax Revenue.
Wrong again. Please don't quote the daily fail. If that had happened we would have had a headline every 3 months about a deficit. Care to quote one? Just one? Nope, not there are they!
In fact the last PM in charge of the country when we spent more than we got in taxes was.... John Major. And the previous one was... Margaret Thatcher.
Hence why we are now £1 Trillion ( yes One Trillion Pounds )in debt, and have a Budget Deficit of £160 Billion.
So you don't think that some of that debt stretches back to the late 1700s when the first bonds were taken out has anything to do with it then? Or the centuries of constant refinancing rather than paying back the actual debt? Or the failure of successive governments to close tax loopholes that costs us billions every year? Or the US charging us (plus interest, finally paid back under Brown in 2007) for their assistance during the war? Or that a drop in income was to blame for the difference between income and outgoings?
The origins of our current debt is over 100 years prior to the first Labour MP ever standing for parliament, leave alone the first Labour MP getting to be a minister- so you can hardly go laying the blame for absolutely everything at their feet!
The real problem is the consistent following of insane economic policy by every governement for decades upon decades.
If a household were to take out a new equity based loan every year to pay the previous loan- interest dealt with by the new loan being for the amount your house is now worth after 'economic growth'- your financial adviser would deem you incompetant. Do the same with a nation and no one bats an eyelid, only blames the previous guy in charge when the inevitable happens and the interest is higher than the increase in equity on the building.
And if that sounds mad in and of itself, take into account that we also decided it was a good idea to sell off our front door, hallway, kitchen, windows, sofa and beds in order to rent them back in the deluded belief that we would get a better deal than simply paying for the maintenance and/or replacement ourselves!
Meanwhile we have our neighbours restricting what we can grow in our garden so we have to spend more of our money on fuel to get the food we can grow ourselves from them instead.
So feel free to blame Labour for turning their backs on their core voters. Blame them for not fixing the problems they said they would. Blame them for being part of the problem just like pretty much every other politician on the planet. But don't blame them for being the sole political party responsible, because that is blatantly untrue!
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145. At 3:06pm on 25 Jan 2011, Up2snuff wrote:
111. At 1:43pm on 25 Jan 2011, stennylfc wrote:
Official statistics are 1 in 36 but 5 in 12 is taking the biscuit, which is ironic as it was hob nobs that cost me £3.85.
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I hope that was a twin-pack of chocolate ones, otherwise yo' woz' robbed, man!
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Nope single plain 300g pack - 85p. £5 in the self checkout, £ 4.15 change including three fake pound coins. From a BBC piece on fakes last year "As soon as a coin accepted in good faith is found to be counterfeit, it is immediately rendered worthless. Attempting to pass it on is an offence."
I didn't spot them while in the shop so it means I am stuck with them so me hob nobs cost me £3.85. Talk about inflation lol
Googling 'fake £1 coins' throws up a few news stories and the official figures from DirectGov website are 3% or £41 million fakes. Using my figures of 5 from 12 or 41% could mean possibly £560 million fakes.
Some goggle stories mention the Royal Mint may withdraw the current £1 coins from circulation and re-issue a new design due to the number of fakes.
I would take a guess the figures are far higher than the official 3% as people won't hand one in and lose out. However, if it is as high as 41%, withdrawing the coins at massive cost to the Royal Mint, issuing a new coin at massive cost to vending machine manufacturers, and cancelling a possible £560 million worth of currency, is going to have an even bigger effect on the economy as well as confidence in the currency.
Just one more thing to add to the banana republic the UK is becoming.
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this must surely be the beginning of the end of the sterling zone.
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232. At 9:07pm on 25 Jan 2011, fzondervan wrote:
this must surely be the beginning of the end of the sterling zone.
==========================================================================
The beginning of the end was 1939. What you are now watching is the end game.
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No sooner had I posted on here and then Mervyn King is on the news page. I am past getting angry at bankers but sometimes you have to hope the dog isn't nearby when your looking for something to kick.
"Further rises in world commodity and energy prices cannot be ruled out," he said in his speech.
"Attempts to resist their implications for real take-home pay by pushing up wages would require a response [from the Bank's monetary policy committee]."
So on the same day we get told GDP contracts the BOE is going to ensure we don't have any extra money to spend to grow the economy. Obviously he is laying the groundwork for raising interest rates, and it doesn't take a genius to figure out the massive detrimental effect this will have on mortgages and the housing market.
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185. At 4:44pm on 25 Jan 2011, writingsonthewall wrote:
“Is it so difficult to see why the reason is clearly both? It's not a criticism of (Ed) Ballsy - it's a failure to understand people in general.
They're skint, they're scared and now their losing their faith in the people they desperately hope will save them.”
We may not be able to trust the politicians but at least we can place our faith in:
The police - http://www.channel4.com/news/undercover-police-officer-filmed-in-clown-costume
The Lords - http://www.channel4.com/news/lord-taylor-guilty-over-expense-claims
The healthcare system – http://www.hsj.co.uk/news/primary-care/dementia-patients-need-more-home-care/5024526.article
Border Security - http://www.telegraph.co.uk/news/worldnews/northamerica/usa/8280172/American-accused-of-smuggling-80-guns-into-UK.html
And I had only sat down to have my dinner. At least the economy is boomi (Oh the recap of the headlines has just come on)
If you’re out there and you can hear us, please help us Superman
230. At 8:52pm on 25 Jan 2011, Leviticus wrote:
“Nonsense, if we had old Labour policies we'd probably have been in a far stronger situation now than we are. We'd have done things like reduce the gap between the richest and poorest (the opposite happened)”
But they allowed the proliferation of ‘had an accident because you’re an idiot’ companies to set up and advertise giving us the ability to get rich quick. I imagine not anymore, make sure you’re ladder climbing training is up-to-date.
“The real problem is the consistent following of insane economic policy by every governement for decades upon decades.
If a household were to take out a new equity based loan every year to pay the previous loan- interest dealt with by the new loan being for the amount your house is now worth after 'economic growth'- your financial adviser would deem you incompetant. Do the same with a nation and no one bats an eyelid, only blames the previous guy in charge when the inevitable happens and the interest is higher than the increase in equity on the building.”
It seems the kicked can has come to the end of the road!
Next quarters figures may not be as bad; I can only imagine that it would be down to wand wafttery and smoke and mirrors.
Buy tinned food, buy water and make sure you are as fit and healthy as you can be for this impending storm.
Enjoy the ride folks and look after your families.
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Why the sad face ? Manufacturing up by 0.9%.Thats really good news . I feared that with all out heavy industries gone ,and China and India churning out bright young engineers , this country was doomed ; but it seems we are still able to make things . Hooray !
And people are buying less imported tat on the high street . Great news ! That surely will help our Balance Of Payments , which surely matters far far more than GDP .
And families are trying to live within their means , at last . Now isnt that really good news too ?
Cant see what's not to like !
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http://www.bbc.co.uk/news/business-12282405 is the nonsense uttered by Mervyn King in his desperate attempt to keep his job, and keep the huge pile of economists that he has working for him in the Bank of England, because it is no longer a Bank, but a front for a Department of Academic Economics Research.
To quote,
"Mervyn King farted today. Mervyn King had eggs for breakfast. Mervyn King said that tomorrow the price of eggs must be allowed to rise before they fall again in two thousand years. Mervyn King said spare capacity in the economy no longer fools the public that the Bank of England is doing its job of protecting a monetary system. Mervyn King farted again. Mervyn King says Economists are going to keep running the Bank of England, because they know what's best for everyone else. Mervyn Kign says this is because nobody else can count, so nobody else counts except the economists."
Actually, Mervyn King said none of that, but I'm sure you'd appreciate that my interpretation of what he did say is probably better than what he did say.
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I'm seriously thinking about laying up the car and declaring it SORN. Yes its inconvenient, but I realise I can do all I need to do via other means. I've proven it in fact, having laid up the car previously, when I was out of work. The difference now is that I'm thinking about laying up the car whilst I'm still in work...!
Now some will argue that this is exactly what the Government want me to do, because it'll help save the planet.
But I reckon the Government will miss all the tax that I pay on fuel, the annual Road Tax of £235, the Insurance Premium Tax, VAT on parts and garage services...
Then there's the consequence of me only doing the things that I need to do, i.e. not visiting places, paying car parking charges and spending money just for the fun of it...
So if as many people as possible would kindly do likewise, we could probably trash the economy in a matter of a few months, making the current 0.5% contraction look trivial.
Then perhaps, the blasted Government will start to realise that getting around easily is an essential part of the economy, it needs to be affordable and they should stop using the motorist as a cash cow...!
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Looks like Merv has finally admitted that inflation is going to mean a real term wage decrease for us all, the longest real term drop in wages since the 1920s apparently, how do they expect anyone to spend any money facing a future like this?
http://www.bbc.co.uk/news/business-12282405
Apparently if we all start asking for pay rises he'll put interest rates up!
That'll serve us all right eh?
Our wages would increase, our savings would start earning us interest again and house prices would fall so we could all afford to live somewhere as well...Bring it on Merv.
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This does not surprise me and what's more, I am worried as to what the next figures will be like as it can only get worse (rising VAT, fuel and unemployment)as the government tries to get a grip on the deficit which yes needs sorting out, but its clear that you also need a policy to help growth. It has been drummed in to us that we have no money, ok, but why not support growth instead of jumping on the green band waggon, refusing to expand any airports in the southeast, so that no carbon emmissions will be saved, instead, growth lost to other major hubs in Europe! Just one example, plenty more. Without growth, no jobs, no national insurance and taxable income and more state benefit money given out! Be under no doubts however, it was Labour that got us in this mess, and it will be the Conservatives that will NOT get us out of it! They are just as useless as each other, these buffoon's would not be employed to run a company that is for sure, so why elect them to run the country!
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Re Mr KIng...
"He said inflation was likely to rise further to 4-5% in the coming months, before falling back sharply from 2012."
I believe inflation was due to fall sharply for the last 2 years.
Is it me or does the independent BoE just carry out the government's policies.
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125. At 2:08pm on 25 Jan 2011, SleepyDormouse wrote:
92. At 1:14pm on 25 Jan 2011, TheComingStorm wrote:
====================
Nothing about joining the Euro makes any sense at all. Ask the Greeks and the Irish - they will tell you what happens,
Why should we hang on the coat-tails of another country? Can we not think for ourselves, have some self-confidence and, most importantly, get it right!
At the moment - seemingly not, as our leaders and pundits don't understand how the system really works. Joining another huge mistake won't help, we would just be further in the mire!
Sleepy. Please try and be rational and objective.
The 'mire' has been good all round. Not just for the Germans but also for the PIIGS who when all is said and done, all the overs and unders added-up, have done far better IN (the 'mire') than had they stayed OUT. Which explains why there is no rush to leave but a queue of new entrants.
Please try and be a little less disengenous; the property boom in Spain and Ireland is not just down to cheap money but is more to do with lack of regulation.
As for this Septic Isle what does the future hold. Round and round we go with yet another gang of Public Schoolboys in charge - back to the seventies with Stagflation (low or no growth plus high inflation).
Glad I still got my flares.
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why is this drop in GDP a) surprising, b) a problem?
because we rely on an (unsustainable) target of 'continued growth'.
ask yourselves: how can an economy, a population or anything for that matter, grow indefinitely? the answer: it cannot. we can grow at the expense of something else, since this planet and this country has finite resources. Our economy can grow one year perhaps, at the expense of debt created on the other side of the planet. now we're on the way down, and some other country is on the way up.
if you are at work and feel underpaid (due to inflation), take some (paid) time out and watch this: http://www.youtube.com/watch?v=F-QA2rkpBSY
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So, the chancellor pronounces "we're not going to be blown of course by the weather". Ha, ha! This is classic material for "The Thick of it"...it's straight out of the book of political satire. You're having a larf, chancellor...aren't you? The quite remarkable fact here is that even after a huge dose of laxative (aka quantitative easing) the UK economy is still constipated - yes, stuck at 0% if you allow for the bad weather factor. The central problem seems to me that the banks are hell-bent on shoring up their balance sheets instead of giving credit to perfectly viable businesses....but, then Osbourne hasn't the courage to upset his pals in the city by carrying through radical banking reform, has he?
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Nice to know that Merv the swerve is in it with us, having refused two pay rises because they would be, erm, inappropriate. Fantastic example to us all!
It must be tough on just £302,885 p.a. with no increase in the last three years!
Pass the violin.
Since the election, Merv has shown his true colours and undermined that tosh about the Bank of England being independent.
Draft text from the next letter to the chancellor ' Dear Oz, We are continuing to inflate away the value of sterling denominated debt as I know how important that is to you. Of course, the majority of the country is suffering and there may be the odd death from hypothermia or starvation - and of course in the long term there will be more of that as the NHS declines and pensions don't keep pace with prices. But we're all right, and anyway, that will be after you and I retire and the other lot might well be back by then, having to deal with it. We will be able to enjoy their travails from our walled compound in Oxfordshire. And as we have always said, if a man cannot afford to play rugby, then he should not play.
21st century Britain? or 19th century Britain??
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It's like I've been saying from the start....
They should stop playing with their knoted puppet strings and be focusing on rebalancing our economy.
The QE money should have been used more effectively, by subsidising private start-ups in some way.
Perhaps not full funding, but a helping hand, say 30% of start-up costs.
Funding think tanks for the unemployed where new products and services could be developed.
Get out and advertise this in the engineering and manufacturing departments around the country.
Monitor projects closely to ensure the scheme isn't abused.
That way, the private sector still gets involved. Unfortunately, this means the current set of pigs still get there feed at the trough (as the banks get involved to fund the rest), but at least it keeps things moving til we get the machine in motion with better monitoring and controls in place. In fact, we may even have put the casinos back in there place by the time the resultant start-ups become profitable.
If this had been done earlier, we'd be seeing the shoots of recovery by now. Instead, our nations lags behind as we wait for the masters of the universe to make a lucky bet or five. All that (future) tax money has funded speculation on the markets, helping industries out with our lands and finally into our chums down in the square miles pockets.
Hopefully, the government are starting to worry about the figures they are seeing...you reap what you sow, and they went and planted nothing but sprouts this year! Merry christmas one and all!
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you just couldn't make this stuff up!
min. growth forecast was +0.2% and it came in at -0.5%, and they are blaming the whole 0.7% difference on a couple of weeks of severe weather?!!!
to put that into context, after the epic flooding they have just had in Australia ......and in area which relies heavily on mining ...they estimate the whole thing(relief, damage repair, rebuilding, lost output and lost exports etc.) at 0.3% of GDP (correct me if I am wrong anyone).
and the UK politicians are trying to say -0.7% for a couple of weeks of bad snow!! who do think they are kidding?
did you hear any of them say in early Jan. "well of course you know this severe weather is really going to put a dent in the expected growth".
nothing zilch.
I'll say again, stagflation.
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Just imagine if we continue to bump allong at annual GDP of 0.1% (or is this too optimistic) we are doing worse than the Eurozone or the 'mire' as Sleepy calls it.
As BoolywoodBond puts it '...classic material for "The Thick of it"...'
All we need is the return of Spitting Image.
We're all init togetha.
Blades of a fetha.
(Well it rhymes)
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245. At 10:17pm on 25 Jan 2011, Wanil wrote:
21st century Britain? or 19th century Britain??
More 19th century but instead of 'real' Empire, just delusions of Empire.
Sad.
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looks like the ONS have had a busy day - (see ftalphaville.co.uk)
"The Office for National Statistics and HM Treasury jointly publishes monthly estimates of the Public Sector Finances (PSF). The PSF release published on the 25 January 2011 included, for the first time, complete data for the Lloyds Banking Group (LBG) and the Royal Bank of Scotland (RBS)."
"they have added up According to the ONS, Lloyds and RBS will add some £1,300bn to the level of public sector net debt..."
Yes that's £1,300 BILLION!
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Merve been speechifying again! (in Newcastle)
Apparently now he wants to force down the pay of those in work. This will force down spending as it reduces disposable income. Which in turn will force down the economy. Never mind his banker buddies will be doing OK as he still wants to give then access to free money (actually nugatory priced money, at a three century low, plus QE. Merve, you created and ignored the bubble and now you want to create a double dip recession and force inflation up several notches at the same time!
The rational observer cannot but conclude that the Depression is starting. It will not end until the private debt mountain in unwound and, given the lack of policy initiatives, this will take a quarter of a century.
I repeat my call for a National Government. (And a new Governor for the Bank!)
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P.s. STEPH, if you're listening.....
Maybe help us by by-passing the system. Use some of that licence fee (tax) on funding a new economics programme. It will follow the start-up process....be aired on prime time.....
Get in some unemployed, mixed skill teams, stick them in with some engineers, scientist and a pot of money to fund prototyping.......maybe a dragons den final!
Whalla....licence fee turned to future economic growth!
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next thing you know they will be doing back door deals with major oil producing countries (I won't mention any namdes!) to try and get oil production up and the price of oil down.
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245. At 10:17pm on 25 Jan 2011, Wanil:
Go on, admit it - you're after Coulson's job, aren't you?
That piece of prose is fooling no one ...
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251. At 10:39pm on 25 Jan 2011, John_from_Hendon wrote:
I repeat my call for a National Government. (And a new Governor for the Bank!)
And what good will that do.
No candidates of sufficient calibre. The current lot are either starting a jail term or incompetent.
New Guvnor for the Bank ? Just get rid of the bank. Replace with ECB.
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#249. #TheComingStorm wrote:
"245. #Wanil wrote: 21st century Britain? or 19th century Britain??
More 19th century but instead of 'real' Empire, just delusions of Empire.
Sad.
"
I think both of you are way to optimistic. The 'Fools' are running an interest rate regime never before seen since 'time immemorial' (in English Law 6 July 1189 - the accession of Richard 1, or even perhaps before the Conquest - pre 1066). Thus your century reference should be to to 11th or 12th century. Certainly since well before the Bank was founded over 300 years ago - when it started by paying 8% interest!
As to Empire - this is in fact a more historically economically valuable reference as the Empire certainly substantially boosted the UK economy in its heyday. Interesting it can be argued that the reason for this economic boost was that the Empire both gave the UK access to a huge market for its produce and was a source for raw materials at a known and invariant price. An analogy today would be the EU. The EU can provide such a similar access to a huge market and source of fixed priced materials - if (and only if) WE JOIN THE EURO asap!!!!
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Household incomes have fallen. Well there's a thing. What do we the public get in response, Mr King saying pay must stay at these levels and the Government trying to ensure that pay stays low.
If you earn over £50,000 a year I don't think it makes much difference,but if you earn around £20,000 then it means, that with inflation, you don't have the same amount to spend.
Trying to afford to get to work is more important than spending frivilously.
Now I know that this is common sense but will someone please point this out to those who are "in the know" so they can get the recovery right.
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#255. TheComingStorm wrote:
"#251. John_from_Hendon wrote:
I repeat my call for a National Government. (And a new Governor for the Bank!)
And what good will that do.
"
Get party politics out of economics as it did in the 1930s for a while so that the painful, but necessary actions can be taken (without the destructive attention of Rupert Murdoch's media!)
As to the ECB is you are suggesting that we should adopt the Euro I am in total agreement for the reasons I set out in #256 (para 2) above.
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236. At 9:40pm on 25 Jan 2011, annanan wrote:
....And families are trying to live within their means , at last . Now isnt that really good news too ?
Cant see what's not to like !
========================================
Because in a debt based monetary system, the economy shrinks when people pay down debt and live within their means. GDP only grows when people take on debt in this pathetic ponzi scheme. Why do you think the World Economic Forum said the world needs $100 trillion more credit to support economic growth by 2020. That is doubling all the worlds debt built up over 300 years, in the next 8 years.
The game is over, we are just watching it crash and burn in slow motion.
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Here's one for Dempster
The Americans appear to be letting their housing market find its new equilibrium
http://www.bbc.co.uk/news/business-12280038
What will this mean for the UK, which is vainly supporting unrealistic house prices?
Also - I have had a revelation recently. So the banks wont lend 100% mortgages anymore, thats not news, I know.
However the lucky guys and gals who can afford to save for a deposit, will keep their savings in a bank (generally) until they can reach the level of deposit they need. This fuels the banks FRB multiplier, strengthening the banks balance sheet (on paper) and when it is finally converted into a mortgage that becomes 25 years of debt slavery for the mortgagee with zero risk to the bank. (Bonuses anyone?)
It really is win,win for the bankers. Something has got to change...
Realistically... I knew we were in trouble when the Medici Bank won their most famous account. They backed a rather dubious character named Baldassarre Cossa, and it paid off for them sometime between 1410 and 1415 - it has in fact been all down hill since then.
You know I am not sure how much longer the younger generation are going to continue to fall for this... Still 600 years is a long time... and education isn't what it used to be :)
What do you think WOTW? Dempster? Common Man 123? Up2Snuff? Redhairedgirl? Ben? And all you guys and gals from Hendon?
It is reassuring to know that our good old Uncle Merv thinks that a squeeze on UK take-home pay is necessary, I am sure he will be the first person to step up to the plate, after all we are all in this together...
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So what have I learnt today?
1. Economy is flatish, but that is not too bad if rebalancing continues.
2. When there is a VAT reduction not all is passed on to consumer, when there is VAT increase not all is passed on to consumer.
3i. Like M4, GDP can bit a bit of a dodgy figure. But these are the figures used (at least in policy explanations).
3ii. One could easily think that when the BoE needs a dodgy figure to permit it to proceed with not doing its job of controlling inflation then along comes a more uncertain than normal GDP growth figure. Hmmm, too convenient?
4. Politicians will play their games, but this distraction is no longer working. The media shouldn't encourage it and the 3 main parties need to grow up in their discussions.
5. The Chancellor actually mentioned the supply side in interviews about future growth, excellent news. Perhaps when the Governor next talks about excess capacity in the economy the Chancellor might ask him to disaggregate a little - are there no supply side constraints?
6. Construction is suffering (and yet there is all that greenbelt that could be built on to reduce housing and commercial costs).
7. I get bored writing lists ...
BTW has anybody ever received a reply from the Treasury in their specified 15 days? (I sent a question back in September and as yet have no response).
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#251, John_from_Hendon,
John,
"Apparently now he wants to force down the pay of those in work."
Didn't he also admit in the same speach that real wages are still at the same level as they were in 2005?
He also indicated that inflation could rise to 5% in 2011 and fall away in 2012. Now given his track record on forecasting inflation (and his inability to achieve the stated target) are we now really looking down the throat of an 'official' rate of 8-10% with a household rate significantly higher.
So who's going to utter those immortal words, "a price worth paying" first Gorgeous George or Merv the Swerve?
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259. At 11:17pm on 25 Jan 2011, stennylfc wrote:
"Because in a debt based monetary system, the economy shrinks when people pay down debt and live within their means. GDP only grows when people take on debt in this pathetic ponzi scheme. Why do you think the World Economic Forum said the world needs $100 trillion more credit to support economic growth by 2020. That is doubling all the worlds debt built up over 300 years, in the next 8 years.
The game is over, we are just watching it crash and burn in slow motion."
Thank you. Dempster has been educating me but I think that sums it up.
If the figures out today were positive and any kind of spin (bar the weather) were to to be put on it it may have been 'slow motion'. I think the contagion in North Africa may make this play out in 'normal speed'.
The immediate connection isn't obvious to me but this is a global economy. We are all inter-linked. Is this the start? Is the whirlwind being reaped?
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#16 >> Binman,
At the risk of being accused of making a horrible pun, I think your rants are rubbish !!
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I have not the slightest idea about economics apart from what I see around me and have learnt reading the BBC blogs by Stephanie and Robert.
It would appear to me that over the last year or two the following issues, which I can’t understand remain: -
1 How can the Bank of England control our economy using only interest rates (to control inflation, their only brief) when they are now scared to put up rates because it would collapse the housing market and cause a massive write down of assets at the banks? This would indicate to me that the banks (all of them) are technically already bankrupt and only still in business due the BOE’s political stance in holding interest rates at historically absurd levels against their very own brief? Some of my old work colleagues have had massive “silent pay rises” where their mortgages are linked to base rates, far in excess of those renting.
2 I can easily understand why all “new money” is created as debt, what I can’t get my head round is why? And also when the debit is re-paid the “new money” is liquidated, this indicates that unless debt is continually created the economy will collapse sooner or later as your credit worthiness is now a critical factor.
3 There appears to be some sort of unseen thread attached between the Bank of England, Politicians and the banking system generally as well as powerful media operators and multinational companies, i.e. I get the view that money buys power as this unseen thread never seems to get broken.
The bank interest rate (in my unworthy opinion) should now be at about 4%, yes this is going to cause problems but at this stage it can be managed in small increments.
If nothing is done to interest rates soon then it will all have to happen very quickly because wage claims will go through the roof and these are outside of the control of the BOE and the government and the unseen thread will be broken and it’s this that will bring down all the banks and of course the incumbent government.
So from my uninformed view the problem is the banks, they have simply become more powerful than the “Voice of the People” that being the current government (which in fact could be any over the last thirty years).
We now have our backs against the wall; no-one in power has any room for leeway, there seems to be no plan “B” or in fact any existing plan “A”.
We are at the mercy now of an event driven model. God help us all!
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@251 - JfH
A new Governor is certainly called for when the current one blames everything except the Banks (BoE included) for the current mess.
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Osbourne is right not to panic on the basis of the Q4 GDP figures, also relying on GDP as the sole measure of the economy is meaningless, its necessary to look at the bigger picture which Stephanie does to some extent.
Just to stand still we need to re-employ the public sector people being made redundant or the economy will contract, to get it to expand we need to do more than that. Another alternative is to earn enough extra money though financial services to re-employ the unemployed in the public sector and go back to where we were before the banking crisis or even more difficult, earn enough to be able to carry high levels of unemployment. The chancellor has made it clear that he does not want to return to such a heavy reliance on the financial sector and does not want high employment or to increase the public sector, so the economy has to expand at a time when most people have less to spend and many have a lot less to spend. That means the expansion has to come from outside and the only way to do that is to export more. The critical economic figures in this scenario are exports and secondarily the balance of trade figures. Those figures for the last quarter aren't out yet but figures for the the first three quarters of 2010 (plus 2009)are. These show that while exports have increased it's be nowhere near enough to achieve the economic results required, even worse, imports have also increased such that the balance of trade is steadily getting worse. The 2010 Q3 results were particularly bad but this could be one off abberration. If I were in George Osbournes shoes I wouldn't worry about the Q4 GDP figures but I would be seriously concearned that there's no significant sign of the increase in exports required to fufill the economic plan. If it's a case of export or die then on the current figures death seems more likely.
figures for 2009 & 2010
UK trade in goods Seasonally adjusted: £ billion
Exports Imports Balance
2009 Q2 54.5 74.7 -20.2
2009 Q3 56.7 76.4 -19.7
2009 Q4 60.6 81.9 -21.3
2010 Q1 62.5 84.7 -22.2
2010 Q2 66.0 88.7 -22.7
2010 Q3 66.2 91.9 -25.7
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242. At 10:10pm on 25 Jan 2011, TheComingStorm wrote:
==================================
Sorry, I've been out and have only just seen your post. I believe I am being rational and whilst i recognise the irrationality of it, I doubt you will convince me of your viewpoint. We may never agree. I doubt I can convince you to alter your thoughts on the topic. The best might be that you consider other ideas more. The Euro should never, ever have been allowed into existence without full monetary and fiscal policy union – if that had happened then it might succeed. As it is, I suspect it will lead a troubled life and will probably fail. I hope you will accept that, for Europe, full monetary union is currently impossible. The economies are far too divergent to make any economic policy applicable to all. In my view, they never will be. So a single currency is inappropiate.
US, UK and AUS all have fiat currencies. Our government has the sole right to issue our currency and we have a floating exchange rate. We have the freedom to do what we need to financially for the benefit of our citizens. All the countries in the euro-zone do not have this freedom and they are thus very constrained. Greece and Ireland would be in a far better situation if they could devalue; this would significantly reduce the pain for their population.
Why are there countries who want to join? They are poorer than average and want to try to benefit from the richer nations. They seem prepared to sacrifice a lot for a very high risk [my view] gain.
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#34 >>Whilst we are at it ... can we outsource the City Investment Bankers to Asia as well? It would cost us all a lot less and they would likely do a much better job!
HSBC went one better and moved its entire head office there !!
As for investment bankes, I have always said that those who live by the sword should die by the sword !! Those banks that played fast and loose with their depositors' money should have been let to die and their depositors compensated to some extent by the government and transfered to another bank of their choice !!
Instead, the two "premier" Scottish banks have been allowed to cripple the entire British economy by being bailed out !! Selling them now will greatly ease our national debt, *ESPECIALLY* since one of them has the temerity to claim such hefty "profits" that they see fit to pay their own bankers huge bonuses !! If they are so good, then they should fetch a reasonable price on the market and the proceeds of those sales can grealy reduce our national debt !!
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Vince Cable had an interesting article in the New Statesman on the 12th January
http://www.newstatesman.com/economy/2011/01/investment-keynes-essay
Robert Skidelsky and David Blanchflower responded yesterday
http://www.skidelskyr.com/
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This evening after watching Newsnight and the Daily Politics Show on iPlayer it seems to me the first thing that needs to happen is that somebody in power needs to admit we are well and truly (this comment has been removed be the moderator).
I wonder if self moderation is permitted.
When will a politician stand up and be counted. If they continue not to be then the agony will be prolonged...
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256. At 10:53pm on 25 Jan 2011, John_from_Hendon wrote:
“..............The EU can provide such a similar access to a huge market and source of fixed priced materials - if (and only if) WE JOIN THE EURO asap!!!!”
=-=-=-=
Sorry John, but I just cannot believe that this discussion of yours is true as the UK is in such a weak position. When we had an empire we could enforce our wishes, at times brutally. Now we cannot do the same sort of things at all. The Euro is a false path.
Sadly, having read your posts, I doubt I will convince you. We could end up like Greece or Ireland if we join, and there is actually a better way; Stay Independent, Keep the Pound
and no, I am not a little englander but I do like pragmatic common sense views.
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#251 John_from_Hendon (again)
John,
"The rational observer cannot but conclude that the Depression is starting."
If you were a US Supreme Court judge you would have to resign as you have just reversed yourself!
3 years ago on this blog, you and I were already calling this mess as a depression (remeber those rants that accused us of "talking-down the economy"). The process hasn't changed it's still the same depression. All that has happened is that we've gone over the edge of yet another ledge on the downside of this depression and there's more slide to come.
People tend to think that all depressions have the same shape as the Great Depression - they don't and they are all individual. The commonality is that they are long term, tend to have global effects and are usually associated (at some point) with military action.
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There seems to be a lot of rantings about "consumers must buy goods in order for the economy to grow"; quite forgetting that *MOST* of the goods bought are IMPORTED !! The fact that it's rampant consumerism that got us into this horrible state seems to have been ignored or forgotten !!
It's not consumerism that will get us out of this mess !! Its more exports that will do so !! Pandering to consumerism will simply use up whatever resources needed to expand export-oriented production !!
As several commenters have said, the dark days are here !! Either we tighten our belts and forge on OR have one last hurrah as Britannia sinks beneath the waves !!
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Quagmire ! Quicksand ! DODOOS !! FUBAR !!!
Come to mind.
We live in scarey times.....
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#113 Dempster wrote:
'Why £1.48, as opposed to £1.47 or £1.49?
I'm curious, why so specific?'
148.9p/lt (which is read as £1.48) is £6.77 per gallon, most people around 40 and above still think in gallons and £6.77 is near enough to £7 per gallon for them to think that derv has gone up by more than a pound per gallon since last summer.
The last time there was disgruntlement regarding the price was when it breached £6 per gallon (131.9p/lt) in the summer of 2008, since then inflation of ~10% takes it up to around 144.9/lt but everyone knows that we are in an austere period so there is a bit more leeway. Another fourpence a litre will be enough to tip the balance.
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#198 Nautonier
THANK YOU, THANK YOU, THANK YOU
There I was thinking I was going to have to witter on yet again about GDP being a measure of SPENDING and that not all spending is good (burning the midnight oil to keep the lights on, for example) and that its merely government that cares because its got its hand in the pocket of every transaction (virtually)and measures its debts and spending as a percentage of GDP and if GDP goes down these percentages go up AND Lo you do it for me and rather more eloquently.
Not a single journalist has mentioned that we have been exhorted for the last 6 or 7 years to cut consumption, reduce greenhouse gases etc. Well is it a surprise that that might have happened. We were given CFL light bulbs for heavens sake. How can it be a surprise that spending is less we've virtually been told to stay at home, don't travel unless you have to, stay at home to aviod germs and if you look at the data the reductions have barely anything to do with spender in chief: HMG.
I asked some friends of mine why there was so little fuss in the US about rising gas prices this time around and she said
a) we're resigned to it;
b) we've started to get the green thing;
c) we're willing to travel less often and buy less gas.
I found myself saying 'ah, the green thing. Have you ever wondered whether this is just a mechanism to make us spend more on something new that makes us feel as though we are doing something good because the greenest thing would be to stop spending?'
Actually, those that have adopted the spend less, 'Good Life' approach to life should probably be sent to some gulag or other despite their carbon footprint for having such a negative impact on GDP.
Please don't assume that when I say spend less I am referring to anyone who has few options in life. I am referring to anyone who can make adjustments to their spending patterns including taking advantage of every offer that comes your way for stuff you do use or who walks instead of paying to go on the bus.
I'm off to look for a 1955 Morris Minor. Overall impact on environment rather low I'd guess what with its 950 cc engine and lifespan of 55 years.
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Being that the pound is fallen, this is good as countries are able to buy more at cheaper export prices. Leading to perhaps an increase in demand abroad, this would hopefully help recover our huge deficit. Talking very hypothetically of course, being an A2 student. Could this money coming into the economy be used to invest in the construction sector, creating some new houses, therefore creating some form of multiplier effect?
All this to one side, I quite want to get involved with these discussion, I want my career in the future to take me down these roads, but still have a lot to learn.
Could someone explain to me about the splitting of investment and retail sections in banks?
I get that investment was high risk and high gain, and the retail banks are more reliable. But some more information would be nice.
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#273, SleepyDormouse,
Sleepy,
In the present climate I would agree that we should not join the Euro. That is not because I have some jingoistic allegence to Sterling but because I feal that the stresses and strains on the Euro could have an even more negative effect upon our economic position.
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Ok I understand the worry about inflation but would suggest that because it is cost push it will eventually even out as consumer purchasing will decline because of the impact of inflation, VAT , downward pressure on salaries, and uncertainty about job security. What is the point of countering this with more easing of money supply? The recovery will be export led, so why not focus on this?
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265. At 11:36pm on 25 Jan 2011, UnionRep wrote:
"I have not the slightest idea about economics apart from what I see around me and have learnt reading the BBC blogs by Stephanie and Robert."
It seems that your learning far more here than the economists the Government listen to.
in answer to your points..
1) Yes, both the US and UK have lost the ability to control inflation through interest rates without causing massive damage to their economies.
Banks created a massive housing bubble to generate higher mortgages meaning more debt and more profit. We wont even go into the illegal practices in the US. Because mortgages are so intrinsically linked to interest rates, putting them up now would mean millions of people will struggle and possibly lose their homes.
2) You answered your own question, but it is the global nature of banking that means debt will never be paid off and more debt is needed to keep paying the interest on the old debt. It's a ponzi scheme and it is doomed to fail which is why the World Economic Forum want world debt to double by $100 trillion to support growth by 2020.
3) Now we are into speculation however all the evidence shows, it doesn't matter which party is in power, nothing ever changes. Politicians have their lucrative boardroom careers after politics to think about after all. I suggest you check out what #230 Leviticus wrote above about Tony Blair and the Carlyle Group, then ask why yourself why he has 'earnt' millions since leaving office.
You seem to have a pretty good read on the situation and sadly I have to agree with your last statement, God help us all.
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So King is proposing a wage squeeze rather than a wage freeze. Does this blinding neocondem proposal include Bankers pay? or are they as usual a special case? Answers on a post card please in words of no more than one sylable because Gideon has problems with maths and he's not too good at english.
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#282 - No and Yes
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278. At 00:35am on 26 Jan 2011, lukeytukki wrote:
Could someone explain to me about the splitting of investment and retail sections in banks?
I get that investment was high risk and high gain, and the retail banks are more reliable. But some more information would be nice.
In simple terms, Investment banks gamble with rich clients money and retail banks provide a service for a functioning economy so have the Government guarantee behind the deposits. Once the separation between the two types of banks was removed it meant Investment banks then had access to retail deposits to gamble with, and more importantly, backed by the Government guarantee they got more reckless.
Without this link between the two banks the investment side could have been allowed to collapse in 2008, albeit wiping out pension funds and rich investors but leaving the day to day retail banking system intact.
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I cant sleep !
Davos is featuring in the news. My take on it
http://www.bbc.co.uk/news/business-12282938
Austerity, bubbles and digital worries
Five big themes are dominating the Davos agenda:
1) How will the rise of India and China alter the global balance of power?
It will drag western economies down until there is a level playing field and minimum wage is £2 per hour.
2) How can Western economies cope with debt, austerity, joblessness and potentially years of low growth?
Inflation needs to be factored into that theme and the simple answer is they can't so martial law may be used so that we take our bad medicine.
3) Will rapid economic growth in emerging economies trigger run-away inflation, and could it lead to dangerous bubbles? Economists at IHS Global Insight already compare China's property market to that in Japan before the big crash of the early 1990s.
DOH! Do they not learn anything. Only idiots keep doing the same thing over and over hoping to get different results each time.
4) How are digital media and technology changing not just whole industries, but human society?
It's killed off music retail, enabled globalisation to expand rapidly leading to massive off shoring of jobs and allowed banks to destroy economies far quicker. However, it has also led to a massive awakening of the public to how things 'really' work, without us being spoon fed propaganda by mainstream media.
5) And as the enemies of the World Economic Forum (WEF) seem to have disappeared, the capitalists in Davos have to be their own best critics, with a series of sessions examining the failings of the global economic system - from poverty to inequality, resource problems and green issues.
I suggest they stop listening to each other and read both Stephanies and Roberts blogs for the last two years, they may learn something.
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Most stupid line I have ever read in the above BBC link..
"Every job outsourced to India creates or sustains two higher-value jobs in the United States" Hari Bhartia, president of the Confederation of Indian Industry.
Give us a break, if off shoring created or sustains two jobs at the home nation they why are you discussing themes 1 and 3.
Davos. Yet another jaunt at taxpayers expense for the elite to get it wrong again and arrange their secret deals.
And on a separate Davos item
http://www.bbc.co.uk/news/business-12279769
Massive loss of trust in Governments, Banks and Business will be difficult to rebuild is elite speak for "We may have pushed the little people too far in stealing all the wealth and they may start fighting back". Year of the revolution maybe, Tunisia, Algeria and Egypt already this year and were only four weeks into it.
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259. At 11:17pm on 25 Jan 2011, stennylfc wrote:
Because in a debt based monetary system, the economy shrinks when people pay down debt and live within their means. GDP only grows when people take on debt in this pathetic ponzi scheme.
Why can't GDP grow by Govt deficit spending without borrowing ?
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260. At 11:23pm on 25 Jan 2011, Thames Ditton wrote:
Here's one for Dempster
The Americans appear to be letting their housing market find its new equilibrium
http://www.bbc.co.uk/news/business-12280038
What will this mean for the UK, which is vainly supporting unrealistic house prices?
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My experience in the Northwest:
Buy to let flats have fallen value between 25% - 50% depending on their attractiveness to owner occupiers
Owner occupied houses have dropped around 10% - 20%
Commercial property has fallen around 30% - 50% depending on what type of building it is.
Owner occupied houses are the larger of the three categories, but still overall you’re currently looking at an average fall of somewhere between 20% - 30% in the value of assets which are the underlying security against property loans.
But it doesn’t end there. For house prices to be affordable they have likely to drop another 20%, possibly even more.
But they’re unlikely to drop to a level below 12.5 x the gross annual rent given current interest rates.
Now with many mortgages requiring a deposit of somewhere between 10% and 25%, and austerity measures now starting to work through the system; I think you need a leap of faith to conclude that house prices won’t fall further.
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Anyone listen to File on 4 last night? Unusual to hear that the housing market is knackered on the BBC. Of course it's just on radio so the audience is limited, but still.
Meantime BBC radio is playing the blues. The Today programme are howling at the moon as cuts start to effect their ivory towers. World service job losses today. I do hate to see radio cuts as I really like BBC radio but we are where we are...
Got no budget -dah da da dah dum-
World service shrinking -dah da da dah dum-
Can't barly stomach
This BBC sherry I'm drinking
Yeah I got the BBC blues
-John Humphrey mouth organ solo-
-etc-
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Also I love all the "inflation is down to external forces" stuff. Didn't our currency drop 25% after the world realized Britain was a ponzi scheme? Pretty sure that has effected our ability to absorb commodity price increases.
Stephanie - what is the point in you reporting when you just repeat King's thoughts with zero added value?
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I was surprised to hear on Radio 4 this morning that this will be the sixth successive year of lower real wages. I thought it had all been caused by the wicked Tories/bankers!
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In the 1930's the rich lost fortunes, investors and bankers threw themselves off buildings and the working folk lost their jobs and standard of living....
In the 2010's the rich make a killing, investors and bankers make a fortune and the working folk still lost their jobs and standard of living....
Lessons learned from the 1930's; protect the rich, stuff the poor.
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The British still don't get it. The Germans get it. The French get it. We need to buy things made or produced in Britain, and sell British things abroad. Simples. It doesn't matter if its goods or services, its all the same.
Rushing out to buy foreign made products might make the retail sales look good - but its not doing us any real good.
People employed in the public sector should feel especially obliged to buy British, since its the people who made those products who are paying their wages.
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Don't worry the economy is about to turn the corner and the next figures will show this as yesterday I saw someone purchasing a packet of fish- fingers which proves to me that the economy can only be on the way up.
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Just a little thought.......if councils found it difficult to clear the snow last year whats it going to be like next year when they have sacked hundreds of thousands of their employees?
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286. At 06:11am on 26 Jan 2011, EconomicsStudent wrote:
259. At 11:17pm on 25 Jan 2011, stennylfc wrote:
Because in a debt based monetary system, the economy shrinks when people pay down debt and live within their means. GDP only grows when people take on debt in this pathetic ponzi scheme.
Why can't GDP grow by Govt deficit spending without borrowing ?
The Govt are up to their eyeballs in debt, £1 trillion, the deficit is only the imbalance between income and outgoings which was £180bn in 2010. The reason it is so high is the interest on the debt alone costs us £50bn a year which is why the Government is implementing austerity measures, but we can see what effect that is having on the economy.
Your solution of Govt spending to spur growth is just kicking the can down the road. However the Govt's ability to borrow cheap money is based on its ratings which will drop as the debt increases as a % of GDP..ie Greece and Ireland. Sooner or later the massive debt needs to be addressed before ALL tax income is used just to pay interest.
The Government is between a rock and a hard place, a death spiral caused by greed in the banking sector.
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AnotherEngineer our pay has fallen behind labour productivity since the mid 70s blame the neo-liberal lamestream economics ideology and the New Aristocratic Managerial Elite! ;)
http://bilbo.economicoutlook.net/blog/?p=13193
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277. At 00:32am on 26 Jan 2011, mrsbloggs13c2 wrote:
#198 Nautonier
THANK YOU, THANK YOU, THANK YOU
There I was thinking I was going to have to witter on yet again about GDP being a measure of SPENDING and that not all spending is good (burning the midnight oil to keep the lights on, for example) and that its merely government that cares because its got its hand in the pocket of every transaction (virtually)and measures its debts and spending as a percentage of GDP and if GDP goes down these percentages go up AND Lo you do it for me and rather more eloquently.
Not a single journalist has mentioned that we have been exhorted for the last 6 or 7 years to cut consumption, reduce greenhouse gases etc. Well is it a surprise that that might have happened. We were given CFL light bulbs for heavens sake. How can it be a surprise that spending is less we've virtually been told to stay at home, don't travel unless you have to, stay at home to aviod germs and if you look at the data the reductions have barely anything to do with spender in chief: HMG.
I asked some friends of mine why there was so little fuss in the US about rising gas prices this time around and she said
a) we're resigned to it;
b) we've started to get the green thing;
c) we're willing to travel less often and buy less gas.
I found myself saying 'ah, the green thing. Have you ever wondered whether this is just a mechanism to make us spend more on something new that makes us feel as though we are doing something good because the greenest thing would be to stop spending?'
Actually, those that have adopted the spend less, 'Good Life' approach to life should probably be sent to some gulag or other despite their carbon footprint for having such a negative impact on GDP.
Please don't assume that when I say spend less I am referring to anyone who has few options in life. I am referring to anyone who can make adjustments to their spending patterns including taking advantage of every offer that comes your way for stuff you do use or who walks instead of paying to go on the bus.
I'm off to look for a 1955 Morris Minor. Overall impact on environment rather low I'd guess what with its 950 cc engine and lifespan of 55 years.
................
Time to put GDP in the waste bin and measure things differently! Or at least make better sense of GDP.
Morris Minor's I'm told were discontinued in production because too reliable and Morris had too many spare parts! Unfortunately, I wrote off my dad's morris minor but it did 40mpg and was a teriffic car.
We should make morris minors again here in the UK (now still made in India?) and tax the foreign cars off the streets!
If we really want to survive going forward in the UK, then these are the kind of touch choices that are going to have to be made for most
(unless you're an exec banker).
If the govt pushed the UK to go fully green - we'd all be allright ... but dithers as we're controlled by a rotten establsihment and vested interests, monopolies, spivs and multi-nationals.
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288. At 07:45am on 26 Jan 2011, Ben wrote:
"...Anyone listen to File on 4 last night? Unusual to hear that the housing market is knackered on the BBC..."
+++++++++++++++++++++++++++++
Couldn't agree more Ben. Perhaps those wielding the axe have bigger real property portfolios than the soon-to-be axed...
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Someone wrote:
"I'm off to look for a 1955 Morris Minor. Overall impact on environment rather low I'd guess what with its 950 cc engine and lifespan of 55 years"
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I had one of those in the 1970s. I think you're being sentimental, as I'm tempted often.
The facts are stuff like that would not help our economy because the truth is modern cars are much better.
I was forever doing roadside repairs. The electric fuel pump would fail. The kingpins would dry out and collapse disastrously. There was no corrosion protection on the bodywork so cills and doors would rot away. Coolant hoses burst often. The advance/retard weights in the distributor would stick... etc.
There were good points too, but the long lifespan you mention is only down to the odd enthusiast investing a great deal of time and effort to keep a few going. As for the Trabant, now they really did last.
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Why is any economist or anyone else for that matter surprised by these figures? Gordon and his henchmen fooled the public into thinking we could avoid a recession by pumping billions of money the country didn't have to stave off the day of reckoning. Most people with a job haven't had a recession yet but the walter mitty land of labour had to end sooner or later. Labour would like you to think that by putting off the spending cuts until later we would somehow be better off but we all know that if we get into debt getting out of it isn't made easier by adding more! And on inflation I wrote a thesis at Uni in 1978 when inflation was rife concluding that the prime cause of inflation was government spending money they didn't have. Hey Ho I am proved right again. Stop the spending and you bring down inflation.
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Jezzer,
Perhaps you still need to wake up and smell the coffee. People don't see the coalition as doctors treating a sick patient anymore. It's more like they are turning off the life support machine slowly. For me it was never about the depth of cuts and dealing with debt but about quality and just because you are managing debt doesn't mean you are doing it in an even way. Osborne is preaching today about plans to waiver fuel costs in the March budget but I would rather see him put forward a creditable growth plan, especially a private-sector based recovery plan?
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