UK GDP growth fell 0.3% in last quarter

An example of how we often don't really know what is happening in the economy - the estimate for UK GDP growth in the fourth quarter of 2011 has been revised down from -0.2% to -0.3% (according to ONS figures published yesterday).  This was a surprise since survey data had pointed to a more optimistic outcome and some analysts were expecting the estimate to be revised upwards.  It seems a drop in business investment of 3.3% in the quarter was a major contributory factor.  This underlines a fundamental problem with the UK economy at present - business does not seem to be investing as much as it could be.  The Office for Budget Responsibility, in its March Economic and Fiscal Outlook, published with the Budget, stated that it had become more pessimistic about the ability of companies to increase investment significantly, at least in the next year or two.

As far as we can tell, the lack of a convincing commitment to growth by the government is dampening economic confidence.

Stephen Beer, 29/03/2012

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Do we really know what's happening to our economy?

We are only two days away from the Budget and there seems to be no shortage of opinion (including mine) about what it should contain.  But do we really know what's going on in the economy?  At best, we have a general idea.  Surveys of manufacturers appear to point to growth around or above trend (whatever trend growth is at present) but the relationship is not guaranteed and besides, the most recent data has been a bit weaker.

The Office for Budget Responsibility (OBR) made the point, in its Autumn Economic and Fiscal Outlook, that GDP data gets revised for years afterwards.  It illustrates this by looking at the 1990s recession, using Office for National Statistics and Bank of England data (see its chart below).

OBR 1990s recession estimates

It shows that the recession was originally estimated to be over 1.5% deeper than it actually was.  That's all very interesting, but imagine if you are a policy-maker - the Chancellor of the Exchequer say - in the early 1990s ie during the recession and early recovery.  In early 1992, this data did not even indicate a recovery was taking place; you might have believed that the recession was getting worse.  Then again, perhaps the revisions from 1993 onwards incorporated the outcome of actions you took (or didn't take) because you thought things were worse than they were.

It's not easy being a Chancellor.  Charts like the one above show that economic policy needs to be about more than the odd tweak to tax and spending here and there, because they are of limited use when you don't really know what's going on.  It is about government words and actions demonstrating clear support for the economy.  It needs to do so primarily via direct job creation and investment, since both contribute to the future potential of the economy (as well as increasing well-being), which means that if we over-compensate we at least have increased the productive potential of our economy (rather than simply increased debt levels via over-consumption).

Stephen Beer, 19/03/2012

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Support grows for jobs policy

Stephen Timms promotes jobs guarantee in new pamphlet

The Smith Institute published on Friday by Stephen Timms MP, Job Guarantee: a right and responsibility to work,  which promotes the idea of a jobs guarantee. It's not a new idea, as Stephen Timms notes, but he makes the case afresh that promoting employment is good for growth, for the Exchequer, and not least for the people who find work.

The pamphlet draws on a number of sources, including my Fabian pamphlet, The Credibility Deficit.  My argument is that Labour's position should be that an important role of government to be an employer of last resort.  While that is not yet our policy, this debate about a jobs guarantee is exactly the right one to have.  It gets us beyond the current controversy about work experience and focuses on what's ultimately needed - to get people into work, which is an important reason for electing a government and a key reason for Labour's very existence and mission.

Stephen Beer, 10/03/2012

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