The Office for National Statistics today released figures on the performance of the UK economy in the last quarter of 2010, which showed a contraction of 0.5% following growth of 0.7% in the previous quarter.
These figures make grim reading for the coalition government. One more set of figures like these and the UK will be formally back in recession – the dreaded double-dip that many of us have feared for some time.
Much of the media comment on this has talked about the ‘surprise’ of these results. It is difficult to see why this should have been such a shock. Many of us have been arguing for sometime that the best the UK economy can hope to do in the foreseeable future is bump along at the bottom showing low growth rates and occasionally slipping into contraction. Consider the following:
- Trading in the eurozone is not good
- The world financial system is in crisis
- Many companies having reduced stocks in the recession have rebuilt those stocks (thus increasing GDP in the first three quarters of 2010) but this has come to an end
- There are major job losses in the public sector and many more face job insecurity
- The government was heavily criticised by the outgoing CBI director, Sir Richard Lambert, who accused them of following economic policies that could damage companies and job prospects. Sir Richard said ministers had followed policies for political reasons, careless of their effect on business.
- Many commentators (including the current shadow chancellor, Ed Balls) have argued that the government was cutting the budget deficit too quickly and this would damage growth
In the light of the above, the question has to be repeated – why were these figures a surprise? This seems to continue a trend in recent years of independent economic commentators being far too optimistic about the prospects of the UK economy.
At several points during the recession, independent commentators forecast that the downturn would end in the next quarter only to find that it didn’t. I suggest we need a bit more realism in this area.
Professor Malcolm Prowle is professor of business performance in Nottingham Business School and a visiting professor at the Open University Business School
