BBC BLOGS - Stephanomics
« Previous | Main | Next »

No good news on GDP

Stephanie Flanders | 10:39 UK time, Friday, 25 February 2011

It wasn't a bad dream. The recovery really did stall in the final three months of 2010, and it wasn't only the weather. That is the most important conclusion to be drawn from today's second round of GDP estimates for the fourth quarter.

Most City experts were expecting little change in these numbers - and they were right. No-one should read too much into the extra 0.1% that has been taken off output, taking it from minus 0.5% to minus 0.6%.

As the chief economist of the ONS, Joe Grice, commented as the numbers were coming out, that 0.1% change is well within the margin of error. In the past five years, the average revision, in either direction, between the first estimate and the version three years later has been 0.16%. If you extend the time frame, the average change is much larger.

Many will doubtless find it symbolically important that the ONS has revised down the output number, but not changed its estimate of the negative effect of the weather. If the ONS is right, the new figures suggest that the economy would have contracted, very slightly, in the fourth quarter, even if the sun had been shining throughout. But symbolic or otherwise, the same caveat applies, with bells on.

There is even more uncertainty around that 0.5% estimate of the weather impact than there is surrounding the output number itself: no-one should put much store behind the minus 0.1% you get from subtracting one from the other. The basic message of both estimates is that, absent the bad weather, the economy was flat.

Those looking for bad news in these figures (and that is usually everyone) might do better looking beyond the first page, to the trade and investment tables towards the back. Investment was 2.5% down on the previous quarter, and was a key factor in the slowdown. And net trade, once again, made a negative contribution to the recovery - exports growing 2.3%, but imports up 3%.

The ONS do not provide any further breakdown on their estimate of the weather effect: they just say it hasn't changed. Perhaps exporters were worse affected than importers by the snow - that is certainly plausible. But weather or not, we are still waiting for the fall in the pound to generate a significant upturn in the UK's net trade. And we are still waiting for lasting growth in investment.

Comments

Page 1 of 5

  • Comment number 1.

    If one looks at what has happened this week one can see that there are problems for the UK economy as we go forwards. The Monetary Policy Committee is split four ways it would appear and now growth is revised to an even more negative number.
    However looking for analysis I found this which combined the two main news items of the week for the UK economy and I found it worrying.
    "These figures reminded me of a section from the most recent Monetary Policy Committee’s minutes which I quoted yesterday.
    Nominal domestic demand had increased by 6.8% in the four quarters to Q3, accompanied by nominal consumption growth of 6.3%, in part reflecting the VAT increase in January 2010. These were both above their average growth rates for the decade before 2007.
    My point is that if nominal domestic demand is surging at a rate shown above and yet real economic growth is turning negative then the gap will be filled by inflation." http://t.co/6kxWr7i


  • Comment number 2.

    How much of the fall in GDP in the last quarter caused by the weather will simply be delayed to this current quarter?

  • Comment number 3.

    SF wrote: ...we are still waiting for the fall in the pound to generate a significant upturn in the UK's net trade.
    --------------------------------------------------------

    And just how will exporting become easier in the circumstances of increasing imported energy prices on the one hand and increasing base rate on the other hand?

    Higher oil prices = more cost of imports and higher costs for manufacturers.

    Higher interest rates = stronger currency, lowering energy import costs but making exports more expensive.

    Conclusion = There will be no sustained export led recovery.

  • Comment number 4.

    Are we following the Celtic mouse or the Greek lemming into double dip? Possibly too early to tell. However the full impact of cuts in the public sector are only just beginning to ratchet up, serious deflation through inflation is getting into its stride and exports are not exactly galloping away. There plenty of stats and indicators before we get the first quarter figures 2011 but it seems inevitable that interest rates will rise before then so it will be a mystery and a near miracle to have significant growth in the first half of this year. And TU's have yet to role up their sleeves on compensating for living standards to be cut this year worse than one twentieth. It does not help that the Coalition does not seem to be able do anything right.

  • Comment number 5.

    I read articles like this and really do wonder what planet the BBC lives on. A contraction in GDP should be good news as it would mean that we're being more efficient!

    It's time we got away from GDP being some indication of "recovery".

    Until we start using a measure of progress rather than of the uneconomic activity measured by GDP, then we're doomed to keep blindly going until we've felled the last tree.

  • Comment number 6.

    Since investment and exports aren't growing much and consumer spending is moribund then Govt has to step in and ensure the economy continues to grow - that's the best long-term way of cutting the deficit and yet the ConDems are blindly slashing and burning.

  • Comment number 7.

    The main issue for the "recovery" is the price of oil.

    I don't normally make predictions but if $125 per barrel is reached and then maintained - whallop - double dip here we come.

    Stephanie - I'd love to see some analysis on oil price and the economic cycle. Whilst the pirce of oil won't cause a recession or downturn it can certainly trigger one.

  • Comment number 8.

    I can never say this phrase enough; "Self Fulfilling Prophecy".

    When will people realise that if you carry on talking the economy down, it will inevitably go down, and as soon as you start talking it up, it will start to grow again.

    The economy isn't what you think it is. It's a belief system, a system of faith. When you believe in it, it grows, and when you lack faith in it, it weakens it. It's a very simple concept, why is it so hard to grasp?

  • Comment number 9.

    Stephanie,

    "But weather or not, we are still waiting for the fall in the pound to generate a significant upturn in the UK's net trade."

    When hell freezes over! If exportsers chose to protect their margins even follwoing a 25% drop in the value of the £ then it is highly unlikely that any major upturn in the volume of exports will ever accrue.

  • Comment number 10.

    Please can someone explain why raising interest rates does not simply increase inflation? Inflation is measured using price indices and raising interest rates has both short and medium-term price increases. It will serve to contract the economy, leading to more unemployment and larger public expenditure on benefits. This surely leads to greater inflation.

    Looking at the graph on historical interest rates it seems that there is no evidence at all that increasing interest rates reduces inflation- rather the contrary.

  • Comment number 11.

    Looks to me that Darling and Cable (before he joined this inept govt) were broadly right that making cuts in public spending in financial year 2010/11 would be a bad idea, and Osborne/Cameron were wrong. Can't see how investment/export led growth is coming within time scale present Government hopes. More worrying is the general level of incompetence that seems to be almost everywhere in the Government - have a look at the evaluation reports accompanying the Health Bill and ask how any one with a functioning intellect could go ahead with such a massive change in a major institution on such inadequate evidence- why did no one realise that selling public forests to potential tax avoiders would go down badly- why did it take Nick Clegg two days to work out that he should cut short his holiday as this Libya stuff might be serious etc.etc. I fear a terrible year is turning into a terrible five years.

  • Comment number 12.

    It has become increasingly common to talk about confidence in recent times as a significant factor in the economic outlook. Hell, I wrote a research dissertation on the link between confidence and growth in the UK economy, and found it to be highly significant.

    With that in mind, we have had god knows how long now of Labour (and partly the Lib Dems despite being in government) telling everyone how hard life is going to get. Partly, they're right when it comes to spending cuts.

    They're also wrong when they talk about tuition fees, and inflation. The scaremongering that goes on to discredit the incumbent government is obviously in no way something the Conservatives have shyed away from, but the fact is too many politicians are spending too much time telling people they will soon have no money.

    The tutition fees affect no one in the short to medium term, as the only change is how much is to be paid back AFTER graduation - so in about 3 1/2 years time. At that point, due to the increase in the threshold level, graduates on the lowest salaries will be paying back far, far less per month than my generation. Yet, politicians are going around telling everyone how poor they're about to be.

    Then you have the issues out of our control: fuel and food commodity prices. These are going to go up, causing people to be more cautious now for the near future and reducing spending. Ed Miliband is using inflation now to suggest the government is failing in its economic endeavours, when that is not true.

    Imagine if those in power and particularly the media weren't so keen to stay in power or create sensationalist headlines - what would we have?

    Well, we'd have a clear statement that inflation will go up, but then will come down as supplies return to normal overseas later in the year. We would have less people worried that the cost of university will be too much, when actually disposable income per year will be greatly higher for graduates of the 2012 intake. People would be less worried.

    This sums it up:

    "Those looking for bad news in these figures (and that is usually everyone)"

    What on Earth are you talking about? When figures get released like this, I'm looking for what they actually mean, not bad news. Who are all these self-mutilating sociopaths who are dying to hear that the economy is on the brink of collapse? 'Everyone' is usually looking for bad news? What a silly comment.

    Stephanie, please don't try to pass off your own pessimistic (yes, pessimistic, not realistic) outlook on the economy as if it is representative of 'usually everyone'. What you are doing is creating a self-fulfilling prophecy: you tell people things are going to be that much worse, people stop spending and small businesses stop borrowing because of the worry you stir up, then the economy DOES get worse.

    Note: this is not happening because you're correct; it is actually a case of your comments having a detrimental effect on the economy. Pessimism is causing this, then you pass it off as realism in a great big "I told you so" moment later down the line.

    Put a smile on your face, point out that inflation will subside, promote the fact that there is a government in charge who will deal with an economy that was headed for bankruptcy, and you know what? Things might just get better. Confidence is a self-fulfilling prophecy, so try spreading some optimism for once.

  • Comment number 13.

    @5 - Neale

    Reminds me of how,in the mid 1908's, that Thatcher pointed to GDP figures and stated how wonderful it was that output had reached 1979 levels but with 1.7 million less people.

  • Comment number 14.

    If they are not blaming public sector workers for the economic problems they are blaming the weather! All the while bankers and company executives frantically stash away the tax payers money our elected representatives have given them before we the people realise we have been taken for mugs. Guillotine the lot of them.

  • Comment number 15.

    Of course it's not a bad dream, it's turning into a nightmare.

    Certain people need to get out of their ivory towers & come & see what it's really like in society.

    Rising unemployment.

    Cuts, cuts, cuts.

    Socially divisive economic policies.

    A distinct lack of investment.

    Rising cost of living.

    Call from hawks to raise the BofE base rate, which they say is an attempt to control the inflation, caused by factors that raising the rate won't affect namely rises in food & commodity prices (caused in the main hedge fund speculation in commodities, unrest in North Africa & The Middle East, world demand exceeding supply.

    The likely impact of that being further business failures, bankruptcies and further unemployment & increase poverty.

    The ever widening gap between rich & poor.

    Does anyone making these policy decisions have a clue what they are doing? More to the point, if they do, how much do they care as long as it doesn't negatively effect them?

  • Comment number 16.

    So now we now: a three weeks of snow causes 0.5% drop in growth for a FULL QUARTER. Is our economy really that brittle? Do we assume that 0.5% of the current quarter's growth (if any) is substitutional for Q4? I'm afraid I don't buy the 'happy talk' propaganda. We have a major economic problem exacerbated by discredited Keynesian inspired £200bn worth of money printing. The U.S. QE2 & 'soon to be' QE3 will further fuel its main export - inflation. Anyone who thinks inflation will drop in 2012 really ought to take those rosey glasses off. (Why oh why did GB sell the majority our gold off at $250oz when it will certainly be worth more than $2,000 oz in 2012.)
    What next? I suppose interest rates are now off the agenda because growth will resume this year, inflation will drop next year...and gold and silver are in a bubble..
    Yeah right....

  • Comment number 17.

    I am just glad they have decided it wasn't just the weather - was sick of hearing that - every other country dealt with it ok - it was just more excuses!
    In the US 49 out of the 50 states were snow covered!
    http://www.newsnet5.com/dpp/weather/weather_news/snow-is-on-the-ground-in-49-of-50-states-for-the-second-time-this-season

    But pointed out on this article:

    http://www.mindfulmoney.co.uk/3457/investing-strategy/uk-gdp-downturn-is-worse-than-feared.html

    "As most people had the best part of a month off due to hols and the weather I think the figures are not too bad and rock salt had a great month"

  • Comment number 18.

    Can anyone please define 'recovery', what will it's criteria be and relative to what, and how will we recognise it when it arrives, if ever?

    No surprise the city slickers pubs are loosing trade with guesswork statistics emerging daily to keep them confused at their desks, exploitive forefingers at the ready.

    Definately a potential criteria to clock our progress towards 'recovery'
    is the return to ritual Friday pub blowouts to spend just a little bonus in home territory instead of overseas.

    Take it serious, give us a break Stephanie, have a nice weekend.

  • Comment number 19.

    The coalition put the blame on the weather and now they can work on more important matters than economy- new voting system or time zone change. The problem is they don't really have a clue what to do as the focus was on the national debt and not the side effects of cutting it. Vince Cable was convinced back in November that inflation will be lower as petrol prices will go down by end of February. If you made plans on wrong assumptions they are not going to work.

  • Comment number 20.

    #6. At 11:22am on 25 Feb 2011, APbbforum wrote:

    Since investment and exports aren't growing much and consumer spending is moribund then Govt has to step in and ensure the economy continues to grow - that's the best long-term way of cutting the deficit and yet the ConDems are blindly slashing and burning.
    ------------------------------------------------------------------------
    You're correct, but they reject all criticism, have no plan B so won't react until it's too late for large sections of society.

    Of course, certain groups within society always do well, even out of an economic situation like this.



  • Comment number 21.

    #7 Gilthead me too.

    I found this blog very interesting on that subject.

    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 22.

    The problem with the 4Q is that it has Christmas in there. Expenditure for Christmas tends not to be delayed to the first quarter. Instead it just doesn't happen.

    We shall see.

  • Comment number 23.

    People are detecting a lot of negativity and hesitancy across the board (eg http://www.guardian.co.uk/business/2011/feb/24/sales-fall-retailers-pass-on-vat-rise http://www.citation.co.uk/news/redundancy_worries.asp )

    It's the big risk with austerity measures. You need to grow your way out of trouble not cut your way out. The talk of a structural deficit is one thing but just bluntly slashing budgets and shelving government projects and causing millions of people to lose their jobs was always going to cause people and businesses to stop spending.

  • Comment number 24.

    #8 Simon Attwood,

    "It's a very simple concept, why is it so hard to grasp?"

    Yes it is a very simple concept but it is also wrong. When it is perfectly clear that there are major systemic problems in the economy, merely chanting some form of positive message ain't going to change anything!

  • Comment number 25.

    Stephanie,

    "But weather or not, we are still waiting for the fall in the pound to generate a significant upturn in the UK's net trade."

    With the US printing funny money and the markets starting to expect/demand a long overdue sustained rise in interest rates do you think Sterling is likely to depreciate against the basket of currencies of our trading partners? I don't see how.

    As for Simon's view in post 8 that's the religion argument, namely "If only we all think positively and believe everything will be alright." So if I magically believe that I will win the lottery this week it is bound to happen?

    The so called economic boom of the past thirty years has been an illusion built on mounting levels of debt created by the creation of funny money by our banks. Did anyone seriously believe it was real watching a place in the sun or other such program seven or eight years ago when typically a fifty year old postman was selling his terraced house in Leeds and moving to a luxury villa in France or Spain and effectively retiring on the proceeds? Come on it was an illusion propped up by funny money and cheap imports from parts of the world determined to climb the aspiration ladder by doing work at prices we were no longer prepared to do it for.

    There's no such thing as a free lunch or positive karma making everything perfect. Sometimes you have to accept that we have and continue to keep messing it up and to accept a sensible price re-evaluation of the worth of your labour and your assets.

  • Comment number 26.

    "Looking at the graph on historical interest rates it seems that there is no evidence at all that increasing interest rates reduces inflation- rather the contrary."

    Come on now. You're not allowed to look at the evidence or ask for a rational transmission mechanism.

    You have to take it as an article of faith that interest rates are the silver bullet that will cure everything magically.

    That it just moves money from borrowers from savers at the short end is not something you're allowed to know.

    Now repeat after me. ""Look at the Emperor's new clothes. They're beautiful!", "What a marvellous train!", "And the colors! The colors of that beautiful fabric! I have never seen anything like it in my life!"

  • Comment number 27.

    This blog just seems to keep saying subtracting 0.1% from 0.5% doesnt amount to much. I think I got the drift the first time and did not need all the repetition.

    Outside the protection of the BBC and its guaranteed licence fee any drop is a concern......

  • Comment number 28.

    The government has set the economy on a deflationary course by lowering consumption,cutting central and local government spending,allowing inflation to take its course which reduces real income, and letting unemployment rise.

    You would think they would welcome the GDP figures as evidence their policy is working? Well not quite.

    They must begin to question their hope of a recovery led by private capital when investment fell by 2.3% in the last quarter,-or nearly 10% annually.

    The German economy also contracted by over 6% as world trade slumped.They are recovering on the back of an export led, high tech,high value demand from Asia.Germany also saves more so private indebtedness is not a problem.

    Partly through devaluation and the composition of our exports, the German model cannot be replicated by us in the short term.To emulate it,huge public and private investment is needed.If consumer demand slumps through deflation,tax revenue will fall as dole queues lengthen, the deficit will increase and the whole point of making massive cuts will be lost.

  • Comment number 29.

    If they don't know what to say, Economists repeat themselves frequently.
    If they don't know what to say, Economists repeat themselves frequently.

    Other types of people go silent or speak common sense.

    Concentrate less on the quantitative aspects of the British economic system, and instead concentrate more as much as possible on the qualitative aspects.

    GDP +/= 0.1% as a margin of adjustment known and stated by the ONS. So this adjustment is no surprise.

    One would not hope for good news or bad news, because one is not a weather girl. One comments on the appalling fact that the Manufacturing Sector in Britain is headed by 1. Food Processing 2. Paper Industry.

    This fact may be inevitable after the severe negligence of successive governments, but it doesn't look good even to the poorest Anglophile in Calcutta, and day-dreaming about batteries for electric cars that are charged up on solar power and wind power is not enough to "re-balance the British Economy".

    Meanwhile, Media commentators and Editors at the BBC still express dismay at the Recovery of the Economy, in relation to such things as the state of high-street shops in the GrimUpNorth.

    After over a decade of letting the British Economy lapse into a consumer-centric retail industry backed up by Global Banking and Finance, isn't it time to admit:

    This Economic System doesn't need Recovery.
    This British Economy needs Reincarnation.

  • Comment number 30.

    Massive pressure on the Q1 figures from the ONS now - a drop of 0.1% in GDP and we officially have a double dipper.

    Of course it is ludicrous that if we have a rise in GDP of 0.1% then we don't!

    Basically we have a flat economy - we have bottomed with little prospect of a rise - whether we go up 0.5 or down 0.5 makes little difference apart from peopleo bsessed with short term statistics.

    What really matters is having a long term plan and strong leadership to nake that plan happen - both things that are sadly lacking at the moment.

  • Comment number 31.

    I see that they are still rolling out the 'still need to fix the national credit card' nonsense. Numpties.

    We have had some incompetent administrations in the past but this one plumbs new depths.

  • Comment number 32.

    Before everyone gets too excited, the important bit is in para 3. This is the first of up to three revisions of these statistics.

  • Comment number 33.

    I couldn't agree more with Simon Attwood's comment

  • Comment number 34.

    GDP will fall further yet - a long long way further....
    Why...

    Its OBVIOUS

    a) Money is being taken OUT of the UK economy and spent abroad - often by our own government - look at HMS Ark Royal, been decommisioned losing upteen jobs, then shipped to Eygpt by a Belgium company to be cut up - not a single UK job, not a single penny in UK profit. Thats however many millions taken FROM the UK and given away. Same applies to police cars, army tanks, army uniforms, the census, UK tax software, NHS software, council gym kit..... the list is endless - more than 80% of UK tax payers tax money is shipped abroad! This MUST lower the GDP of this country - even an idiot can see that.

    b) UK companies deprived of UK government contracts are also unable to find UK customers (as apart from a few bankers and BBC employees) none of us have any money to spend - and what we thought we might have is taken by the water companies, gas companies, petrol companies, supermarkets in huge inflationary price hikes. This means there is little growth demand. What little there is comes from abroad but....

    c) The bank of England supported by various non-thinking economic commentators and editors think further increasing my pain by charging me more for credit will stop the water companies et al from putting up prices.

    d) The banks - preparing massive bonuses for themselves are ripping small business with exhorbitant and ursurous interest rates and charges further deterrign investment in the UK (and shipping more work abroad as you CAN borrow money abroad cheaper than here).

    This country is doomed until some of the people in power and commentating on their best buddies start to think what is best for the country rather than what is best for their bonus.

  • Comment number 35.

    When will this Lib/Con government wake up before it is to late or are they waiting for the private sector to come in and take over,can someone tell me why if you cut and make people unemployed then they go onto benefits through no fault of theirs,and spend less because of a drop in income, it must pay to have someone working bringing in tax and N.I.I must be stupid!
    This country has no leadership just a lot of chocolate teapots running things,They havnt a clue,they come on TV and tell the middle east/north african leaders to listen to the people,when they dont even listen to their own people.It will be years for we get out of this mess and it is not all labours fault nor the unions,perhaps it needs a uprising to get the message across,we are heading for a double dip due to all the cuts,Well done you Lib/Cons

  • Comment number 36.

    23 Danny Fry wrote: "You need to grow your way out of trouble not cut your way out". But Danny - what is "growth" ? Taking in each other's washing ? Real growth is wealth creation. Borrowing money to fund jobs and so boost the consumer economy ? That's not real growth. And as for cuts, it's the same. Cutting is reducing borrowing. Borrowing which, once again, funds the consumer economy. I see in today's Times that consumer spending equates to 65% of the UK economy. And to the poster today who questioned the use of GDP as an economic indicator, I say "How right you are". Borrowing money to boost the consumer economy ? The GDP will look great - but of course it's pure smoke and mirrors

  • Comment number 37.

    4. At 11:08am on 25 Feb 2011, watriler wrote:
    'It does not help that the Coalition does not seem to be able do anything right.'

    As opposed to the previous Labour government, who could were able to do everything wrong. When will people accept that Labour landed us in this mess?

  • Comment number 38.

    foredeckdave wrote:
    "merely chanting some form of positive message ain't going to change anything!"
    you really need to forget everything you think you know about the economy, it's all false :-)

    The common misconception is that it is a rationally driven and controlled mechanism, steered by people's conscious decision making. This may be the sail, but it isn't the wind. The wind is faith, belief, confidence. And it is the wind that drives the sail.

    Confidence is the fuel that drives the economy.

    and a lack of confidence puts on the breaks.....

  • Comment number 39.

    Those who believe in the afterlife religous or otherwise have an element of FAITH! News just in, it's all smoke & mirrors! And this is exactly what's going on with predictions of so called experts!

  • Comment number 40.

    I wonder if 28 bryhers could explain how the government has "allow(ed) inflation to take its course". Most people accept that recent inflation is overwhelmingly due to increased commodity prices. The £, having lost some 23% of its value in 2008/9 hasn't depreciated any further in recent months. OK, so the VAT increase was one factor. Most MPC "doves" opine that - because inflation is mainly impoerted, raising bank rate would make little difference to inflation.

  • Comment number 41.

    The Governments policy is driven by its own self interest- the Conservatives are funded by banks and big business.

    http://www.guardian.co.uk/politics/2011/feb/08/tory-funds-half-city-banks-financial-sector

    Their policies are therefore designed to help big business [corporation tax cuts, change to tax rules to remove need to to pay tax on foreign earnings, cuts to public servcies to drive up unemployment and so on]

    All of the policies help big business and banks but hurt the majority of people.

    Sign up to:

    www.38degrees.org.uk

    they are the people who collected half a million signatures and persuaded the governemnt to back down on selling off our forests.

    Join the protest demonstrations on March 26th.

    Dont let this continue.

  • Comment number 42.

    C'mon folks, less doom and gloom.

    We'll all be fine once Dave's "Buy British Weapons" tour kickstarts our export lead recovery. No chance of snow getting in the way of things out in the Middle East.

    Sorry, just read what I've just written - we're doomed and I'm gloomy.

  • Comment number 43.

    I love the way the recovery is talked about as if it is a fact.

    We manufacture nothing. We have a nation of kids who can't get jobs. Everyone is up to their eyeballs in debt. Employers are lazy and can't be bothered to train kids up. And to top it off we have levels of national debt that cannot be paid off thanks to the greed of the bankers and their puppets in successive Labour and ConDom governments. Britain is finished. We are in for decades of struggle and unrest.

    In case you missed it (the BBC either ignored or censored the story) Greece is descending into anarchy right now, with tens of thousands out on the streets. How long before Spain, Portugal, Ireland and maybe even Italy and France see the same?

  • Comment number 44.

    In response to Bryhers #28 who says, "the deficit will increase and the whole point of making massive cuts will be lost."
    The deficit was only the excuse for the massive cuts.
    The cuts are exactly what the controlling party in the Coalition have always wanted - the near destruction of what they regard as a socialist state in which 'market forces' are not given free rein.
    Whatever is happening now, expect to see 'evidence' of recovery about a year before the next election and await the downward revision afterwards!

  • Comment number 45.

    Edwin @ 37

    When someone provides sensible backing stats for that assessment instead of hysterical political chants. That also goes for the early criticism of this government, although we need to see some sign of economic understanding and competence from them very soon.

    Take the trouble to look at some of the economic stats going back to the early 1980s, available on hm-treasury.gov.uk and the BofE websites. Our problems relate to mistakes made over a number of years and governments, then add in the horrendous crash thrown of 2008 for good measure (as criminally poor financial regulation and finance professional negligence/greed over 25 years finally came home to roost).

    We are absolutely reaping what we sowed - blaming one particular set of politicians for that will ensure we make the same mistakes all over again.

  • Comment number 46.

  • Comment number 47.

    David Smith in the times had a powerful argument regarding the lost productivity in the last quarter due to the weather. One day lost is circa 1% (1/90). It is not inconceivable that the disruption due to the weather was significantly more than 0.5% given the postal disruption, people missing days at work, shopping days missed, Gatwick/Heathrow and other airports being closed for days at a time etc etc. Why be so pessimistic when just a little more confidence will spur on investment...particularly for construction which seems to have such a significant impact.

  • Comment number 48.

    37. At 12:34pm on 25 Feb 2011, Edwin Schrodinger wrote:
    4. At 11:08am on 25 Feb 2011, watriler wrote:
    'It does not help that the Coalition does not seem to be able do anything right.'

    As opposed to the previous Labour government, who could were able to do everything wrong. When will people accept that Labour landed us in this mess?

    =====================================================================

    They are all as clueless as each other - it appears you are too short sighted as the origns of this goes back to Thatcherism - Blair and Brown continued her work more effectively than the Tories ever could.

    The mess is Debt Based/Fuelled Free Market (which incidently is an oxymoron) Capitalism where 'talented' bankers racked up the biggest debts in history in collusion with politicians (of all 3 major parties) whilst the illiterate right wing press did nothing and does nothing to probe into the murky world of such dealings.

  • Comment number 49.

    There are some very odd things about these figures. At current prices GDP grew by 0.4% so the shrinking all. This suggest that the shrinking is all to do with inflation estimates, which are notoriously unstable: in Q2 and Q3 the net inflation adjustment was zero.

  • Comment number 50.

    Plan B is now essential and if George Osborne fails to move on this news that Q4 was even worse than we thought, it will reveal just how ideologically motivated the coalition is: they are prepared to risk a massive recession rather than take a pragmatic middle course in the interests of avoiding a wave of job loses and businesses going bust.

    I accept that the deficit is an issue, but I also accept that a lot of our borrowing was a one-off event to refinance the banks and we have an asset in the shape of bank equity worth £85 Bn which should be taken into account when looking at UK PLC's credit worthiness.

    You don't need a crystal ball to work out what the issues are:

    Inflation rising.

    Banks are still not lending anywhere near enough to business or to home buyers.

    The economy teetering on the edge of recession at best.

    Personal debt is rising.

    Sharp rises in oil prices which will also drive up food costs and general inflation.

    Falling real incomes.

    Stalled and teetering housing market.

    BoE MPC split on interest rates - they may rase them this year.

    Exports way off the growth curve needed to avoid recession and the economies of our main export markets are still very fragile from the credit crunch.

    Rising unemployment with a tidal wave of public sector jobs going and the prospect of massive private sector job loses too, especially in construction which is about to hit the buffers as public projects all end at once, whilst local and central government abruptly stops building to meet their deep spending cut targets.

    To cut £110 Bn of public spending which translates into several times this figure in terms of loss aggregate demand is as close to suicidal as you can get - if you accept a multiplier of 10, that's over £1 Tn of spending lost to the economy.

    PLAN B NOW!

    How about a major investment in social housing? - this would create construction jobs, reduce housing need and ct the housing welfare bill for privately rented housing costs.

    Allow local authorities more time to cut their spending.

    Revise the rules covering mortgages to make it much easier for parents to guarentee their kid's borrowing.

    Phase in import tarrifs on Chinese manufactured goods because they rig the exchange rates, so that retailers and manufacturers can switch production back on shore.

    Develop a programme of investing in manufacturing in the UK to reduce imports.

    Encourage farmers to produce more food to reduc the level of imports.

    Invest in renewable energy and carbon sequistration then use british coal in clean powerstations capturing the CO2 and reinject it into depleted N. Sea gas fields, as the Norwegians already do with their fossil fuel generation plant.

  • Comment number 51.

    Friedman vs Keynes its the same old argument. Whether it is better to spend or cut to find a way out of recession, the way forward would appear to based on the current government's particular dogma. We may well find our way out of the current predicament in the long run but in the short term it is the poorest in society who will suffer most.
    With regard to growth and inflation it seems that the last recession has only mitigated massive inflationary problems (the price of oil,food and commodities in general. Face it, with increasing demand from fast growing economies there will be less and less to go round and simple laws of supply and demand will ensure inflationary pressure. It matters not what happens to our economy or interest rates we can not control world demand. We will be living with inflation for a long time to come and should get used to a reduced standard of living and aim for social policies that will reduce the pain.

  • Comment number 52.

    Gimupnorth77 @ 46

    Snow in Syria - we're dooooooommmed!!! (said in the style of my fellow Scots fella on Dads Army).

    Any chance you could cheer me up with a similar link that talks of surprise sun and warmth up here in Scotland? (a big ask I grant you)

    If you can do that then I might start taking Simon Attwood's advice....

  • Comment number 53.

    "The economy isn't what you think it is. It's a belief system, a system of faith. When you believe in it, it grows, and when you lack faith in it, it weakens it."

    Entirely bang on the money. Give that chap a coconut.

    As for GDP being down 0.6% - have they taken into account that this december most people would have had 19 days off work - as the way christmas and new year falls it makes no sense for companies to open up the week before or indeed the week after?

    As for the construction industry being weak, where do they draw that conclusion from? I run a plant hire depo, a key yardstick in how well the construction industry is doing - if the construction industry is busy, we make money. The last quarter was our best quarter for 4 years, and december if we extrapolate the turnover to 4 weeks (rather than the two weeks business's were open) then it clearly shows that december would have been our best month all year and probably the best month in 4 years.

    The ONS are in above their head, it was bought to my attention when I recieved a phone call in early Jan from the ONS, asking me why our turnover for december was so much lower than every other month, to which I replied; its a two week month, turnover per day is actually far better than any other month.

    Im not worried at all, if I cannot buy kit off the manufacturers because they cannot make it quick enough, then Im fairly confident the demand is there for hire kit, and as such Im fairly confident that the construction industry will do fine. Construction is first in and first out of any recession, and the construction industry will fly this year - I am speaking to builders whom already have a full order book upon till November.

  • Comment number 54.

    Real economic growth requires a major technical innovation to tick things along. For most of the late nineties and noughties it was the Internet and new media. We had the dot com boom and bust in the early naughties but this is one industry where UK plc does excel and jobs are not exported overseas. The irony is that in the nineties kids doing IT and Media Studies all went into these industries and both are areas of education the goverment and tories in particular like to put down and discourage.

    What the government should be doing instead of just cutting, is throwing money and tax breaks into R&D, Universities IT, and research parks offering capital and seed capital for development and young entrepreneurs , there is huge potential in green technologies to build world class businesses. However in the UK the only companies large enough to invest are either retailers or the ex nationalised industies. You can't have a vibrant SME sector without larger industries to feed off and the "inward investment" experiment has failed.
    This means the government has to invest and this current government just does not seem to get that. Better to borrow to get a medium to long term return than to borrow to pour into a vast pit of unskilled jobs and benefits.

  • Comment number 55.

    34. At 12:30pm on 25 Feb 2011, anotherfakename wrote:

    This country is doomed until some of the people in power and commentating on their best buddies start to think what is best for the country rather than what is best for their bonus.

    =======================================================================

    The people in power who support the failed economic 'model' without at least considering alternatives should be removed.

    I have said this before start holding people to account for their calamitous errors. The War Criminal Blair as a starter. Then move onto the crooks who ran this nation's finances into the rocks - NuLabour and ConDems leadership and their cronies in the City and Right Wing Press.

    People in Egypt, Yemen, Bahrain and Libya have got the message - remove the root cause. The people of Greece will soon be outsing their leadership as will Ireland.

    By foul or fair means - the political elite drawn from a very narrow socio-economic group - must be taken to task. Or we can merely try to treat an untreable symptom and let these real thieves and liars and murderers who have decimated the county go free.

  • Comment number 56.

    Business investment is down despite large profits, trade is down, the only thing contributing to growth was government net spending.

    It's not talk, with VAT and tax rises for the middle in the new tax year more money will be sucked out of the economy...

    All this with real unemployment at 14% and large supply gaps so spare capital going wasted.

    Private households have got huge debt to pay down hence the drops in consumpion spending, unlike the government, the private sector has a real income and debt financial limit, whereas government in full control of money, unlike in the lunatic Euro straitjacket, can keep net spending by cutting VAT and Job Taxes on earned income and national insurance, better still make use of the public sector unemployed paid for nothing by insisting on a days work but offering a Job Guarantee of up to 5 days a week. Look up Job Guarantee and Modern Monetary Theory to find out that there are many alternatives, plans B to Z, that can provide full employment and far more effective price control than mass unemployment and blunt interest rate policy have done.

    Just compare the 50s and sixties to the last 35 years!

  • Comment number 57.

    45. At 12:50pm on 25 Feb 2011, TheGingerF wrote:
    We are absolutely reaping what we sowed - blaming one particular set of politicians for that will ensure we make the same mistakes all over again.
    ====================================================================

    Which is why practically all of them need to be booted out. Lock, stock and dirty rotten barrel.

    Look forward to the ruck on 26th March.

  • Comment number 58.

    37. At 12:34pm on 25 Feb 2011, Edwin Schrodinger

    The three political parties are just (slightly) different shades of the same paradigm. The paradigm is faulty; tweaking the shade makes little difference.

    The Conservatives were broadly in agreement with all significant aspects of the last government’s economic policy up until the crisis hit at which point they suddenly lit up to the political opportunity. If it feels better being taken in by that sort of froth then fine. The neo-liberals love to dumb things down.

    Neo-liberalism is the dominant ideology of our day. So dominant that it is effectively neutral (invisible). There are many heterodox alternatives to neo-classical economics but they get no public voice and very few have any interest in exploring them. All three parties follow the same broad core ideology but the conservatives have a bias towards promoting elites. In time, like all ideologies, neo-liberalism will be superseded. Hopefully fairly soon as it clearly does not work.

    Party politics is largely their way of getting you to support them for a while until it breaks even worse the next time. For what it is worth I voted Liberal Democrat and now have a Liberal Democrat MP. They are by and large much the same as the other two parties.

  • Comment number 59.

    For me I would like to explore letting this ALL wash through the system then start from scratch. Lets not be scared into continuing with something that is broken by the depression word.

    Of course this will never be allowed to happen as there is still lots of money to be made (stolen) by the - pick a term from the list of 000s - and the ponzi scheme must be propped up.

    The tide is going to have to go out one day though.... hope it doesnt take me with it!!!

  • Comment number 60.

    People, what you are watching on the television at the moment is the spontaneous outbreak of Marx’s much awaited combined revolution. The people of Africa and the Middle East are spontaneously rising up and saying “enough is enough”. This is not orchestrated and is an emergent result of the inequities and deficiencies of the World Economic system, in particular finance and fractional reserve banking.

    The uprising was always going to begin in the poorest, most oppressed regions of the World as these are the regions that lose the most from the ability of multinationals and banks to offshore the money earned in these regions, appropriated from the labour of the people, and shunted immediately to tax havens in Jersey, the Cayman Islands, Switzerland and so forth.

    The revolutions will have consequences here. The people are very unlikely to be happy that business as usual returns and Shell, BP and all the rest can return next week and recommence siphoning the money out of their country as before. More likely more of the money will stay in Africa and the Middle East. Our oil and commodity prices are going to rise and rise high.

    Politician in the developed World need to pay attention, as well. In the absence of real change, a sharing of wealth from the global elite with the rest of us, combined revolution will spread.

    My advice to leaders is change your ways now and diffuse the situation. measures you should take might include (but are not limited to)-

    Widespread changes to the rules on funding of political parties

    Far reaching reforms to media ownership

    Changes to tax policies

    Outlawing of off-shoring

    Changes to the indemnities available to auditors

    Disbanding of the Corporation of London

    True Nationalisation of the Bank of England and end to the issue of UK

    Bonds bearing interest

    Haircuts on all previous Sovereign bonds

    Changes to accountancy practices to ban the presentation of
    multinational corporation results as aggregated across Countries

    Retention of either Lloyds or RBS, to be run as a truly nationalised, not for profit state bank

    Export controls on electronic currency

    An end to most forms of derivative trading

    Separation of retail and Casino banking

    Increasing of contingent capital requirement of banks

    Limitations on senior pay (through a statutory high pay commission or very progressive taxation system)

    And so on

  • Comment number 61.

    Are you a vicious right wing government willing to pose as a centrist ‘coalition’?

    Do you need an iron clad excuse in order to carry out all your wildest dreams all at once?

    Then look no further! – Available now from a top well meaning ‘financier’ near you!

    A Big Scary Deficit! TM

    Just actively support all efforts to ensure your nation’s national government hands over the entire financial system/ economy to us and we’ll carefully trash it so badly that it’ll require an eye watering ‘bailout’ of Trillions!..

    The best part is that you can then roll on into power, with effective help from our media mogul chums, and then you can place ALL the blame on the so-called leftist party(Tee Hee!!)in power at the time and also blame THEM for refusing to ‘control us’ effectively (even though if in power you’d have given us an even freer reign than they did! Tee Hee! Ho Ho!!)!!!

    No one’s allowed to argue with the BSD! – TINA There Is No Alternative! We MUST CUT, CUT, CUT!!! All at once and right away because… We say so and.. Erm… Our VERY good friend Nick agrees too! Oh and - ‘There’s no money’!..

  • Comment number 62.

    ThegingerF

    Our troubles have been going on for decades. Unsustainable public debt is am irreducable feature of fractional reserve banking.

    The Mint only produces 3% of the notes and coins in circulation. The other 97% of "money" is created in private banks.

    The upshot of this is that as it is created in banks and can only be passed out eventaully as loans to you and me, then the more money that the banks create (i.e growth) the higher will be our and government debts.

    Remember that 80% of the public sector debt is owned by your pension funds. if you lower the debt, you are lowering the future value of your pensions.

    The system is utterly broken and only works to serve bankers and big business.

    Join positivemoney.org.uk and

    http://www.38degrees.org.uk/page/speakout/tame-the-vampire-squid

  • Comment number 63.

    What do you expect if you raise Capital Gains Tax and VAT at the same time.

    When you are in a hole, stop digging

  • Comment number 64.

    43. At 12:45pm on 25 Feb 2011, SleepingSpurs wrote:
    In case you missed it (the BBC either ignored or censored the story) Greece is descending into anarchy right now, with tens of thousands out on the streets. How long before Spain, Portugal, Ireland and maybe even Italy and France see the same?
    -----------------------------------------------------

    I also heard nothing on the BBC about daily demonstrations in Madison, Wisconsin. 50,000 last Saturday.

  • Comment number 65.

    I said last time that one should never read much into a single set of figures. This remains true. However, blaming it on snow looks increasingly foolish

    Maybe when we have 2 or 3 quarters figures we can say we have a trend - chances are economy is pretty flat and will only pick up when the services sector picks up.

    ==========================================

    Payguy wrote "People, what you are watching on the television at the moment is the spontaneous outbreak of Marx’s much awaited combined revolution. The people of Africa and the Middle East are spontaneously rising up and saying “enough is enough”. "

    Given that the various African and middle eastern countries were effectively monarchies - I know neither Eygpt nor Libya are technically monarchies but given that the man in charge had been at the top for 40 + years as a dictator they can reasonably be described as the equivalent to monarchy - surely a Marxist reading of the situation is that what we are seeing is more likely to be an intermediate stage where monarchy gets replaced by mercantilism? Marx did not envisage a society moving straight from monarchy to workers utopia. If so this could be a problem for the Marx fans as it means those countries would move to full democracy and capitalism. Alternatively it may be that the people in those countries decide to move to a theocracy which most certainly would not be in line with Marx thinking.

    Either way this is not the final Marxist revolution as Marx envisaged it

  • Comment number 66.

    re #53
    Which region of the country are you in, Richard?

    And do you have any business contacts elsewhere in the UK? How are they doing?

    This is one of the great values of posters contributing to the Beeb Blog sites; we can pick up an 'on the ground' feel for the economy that a civil servant punching a computer keyboard and calculator in Whitehall might not.

  • Comment number 67.

    So let’s see if I’ve got this right, the latest figures show that the economy shrank by 0.6% in Q4 where we previously thought it was 0.5%, and that the ‘best guess’ for the effect of the bad weather was 0.5%. In other words we have gone from flat line to flat line, allowing for a 0.1% margin of error, and all of a sudden this is supposed to be an unexpected catastrophe.
    When I look across the office (don’t worry it’s lunchtime so it’s OK to use the Internet) I see many people doing a whole lot of anything but work, and perhaps that tells me a bit about the problem. Collectively too many of us think that the world owes us a living without us actually contributing to it. We expect to be well paid though we do not expect to have to give 100% all of the time, we expect everything to be cheap but are not prepared to make things according to those prices, and we expect someone else to provide for us should we fall off the merry-go-round but moan when we are asked to fund it.
    It’s time to wake up and realise that we’ve been on the slippery slope to ruin for many years since we decided individually and collectively that we expected our own fast buck for doing as little as possible. For a while the perilous course we were taking was concealed from us by our insatiable and blinding appetite for the good life. We all did it - buying things we didn’t need on fantastic plastic with little or no regard of how we would settle the bill because the price of our houses kept spiralling up and we could always take a bit more against that. Maximum return for minimum effort is a very rare thing these days, and perhaps in reality it always was. Instead I suspect most of us must now get used to working harder for less return.
    Back to the topic of the blog the ‘devastating’ economic collapse in Q4; there are an increasing number of voices on this blog and elsewhere behind the case for shrinking the economy back to a more sustainable level and starting again from there.
    If (and it’s a very big if) this path of action was decided upon who would be on either side of the ensuing battle. Certainly not the bankers and hedge fund managers who are making a tidy profit from the current situation, and can you really see the Government and BoE fancying their chances standing against them because if they lose, as they may well do, it will finally show us all who is really running the country.

  • Comment number 68.

    Justin150 - dont really think the important thing is what exact type of government replaces the existing despots.

    The important thing is the people ahve found their voice and no how to express their needs. They can do this again when they need to.

    I dont think the workers care one way or the other as long as the multinationals stop pillaging their economies and siphoning off their money/resources.

    Theres no way those people are going to let the multinationals carry on as before.

  • Comment number 69.

    40. At 12:41pm on 25 Feb 2011, Anselm wrote:
    "I wonder if 28 bryhers could explain how the government has "allow(ed) inflation to take its course". Most people accept that recent inflation is overwhelmingly due to increased commodity prices. The £, having lost some 23% of its value in 2008/9 hasn't depreciated any further in recent months. OK, so the VAT increase was one factor. Most MPC "doves" opine that - because inflation is mainly impoerted, raising bank rate would make little difference to inflation."

    My first point is I am not concerned with what most people accept,nor should you be.Most people are usually wrong.

    The government has allowed inflation to take its course because it reduces the value of public debt,leads to a fall in real wages for state employees, transferring resources to the government,and relies on monetary measures like interest rates and QE to regulate demand.

    Some inflation is due to the high cost of imports,partly due to the devaluation of the pound by 20% and partly because our imports have risen by more than this amount.

    However,we can influence the value of the devalued pound by raising interest rates as last week`s anticipated rise showed.The pound moved up against other currencies until Mr.King disabused the market of the prospect of an early increase.

    The cost of imported inflation is partly in our hands through the rate of interest.The government and the BOE have done nothing about it because they are comfortable with the outcome.

    The argument against raising interest rates is that it inhibits recovery. This argument was reasonable when inflation was low,now inflation at 5-6% is a tax on consumption and reduces demand more than a small rise in interest rates.

    Monetarists find it hard to get their heads round the idea that the general level of output and employment is determined by consumption and investment.Interest rates and QE are monetary measures,you need fiscal measures too.

    Lyndon Johnson said of Gerry Ford,"He can`t walk and chew gum at the same time." Also true of the economics of this government.

    The government has allowed inflation to take its course because it reduces the value of public debt,leads to a fall in real wages for state employees ,transferring resources to the government,and is using monetary not fiscal measures like levels of consumption to regulate demand.

  • Comment number 70.

    58. At 1:13pm on 25 Feb 2011, Squarepeg wrote:
    37. At 12:34pm on 25 Feb 2011, Edwin Schrodinger

    "The three political parties are just (slightly) different shades of the same paradigm. The paradigm is faulty; tweaking the shade makes little difference."

    Until it comes to crisis economics when the parties diverge into neo-liberal using monetarism and left-keynesians who prefer to influence demand using fiscal measures.

    The arguments on both sides are complex.


  • Comment number 71.

    53. At 1:07pm on 25 Feb 2011, Ritchard Jukes wrote:
    "The economy isn't what you think it is. It's a belief system, a system of faith. When you believe in it, it grows, and when you lack faith in it, it weakens it."

    "Entirely bang on the money. Give that chap a coconut.

    As for GDP being down 0.6% - have they taken into account that this december most people would have had 19 days off work - as the way christmas and new year falls it makes no sense for companies to open up the week before or indeed the week after?"

    It`s a quarterly growth figure,not just for December.

    The 2009 comparison showed the economy breaking out or recession and registering its first growth of 0.3%.If you factor out the snow for 2010,growth in the economy was flat.


  • Comment number 72.

    It's actually hilarious to read everyone trying to link everything to economics. The Middle East is not undergoing a Marxist revolution. That would suggest that workers take control.

    They're not asking for that. They're asking for their rights not to be taken away, and to have someone competent in charge of the economy. They want a leader - they aren't envisaging a class system that they want to take over. Just a different leadership.

    "Sometimes a cigar is just a cigar". Get over it. Not everything's a conspiracy theory.

    Final point: I find it incredibly disturbing how many people commenting seem to be actively excited about protests spreading through the streets. The idea is by cutting now, we don't go the way of Ireland, Portugal, Greece etc. Stop baiting the apocalypse and get on with your life.

  • Comment number 73.

    #38 Simon Attwood,

    Sorry to say it but your 2nd post is absolute rubbish. You can have a full gale of positivism but if it is not directed or caught in a well-trimmed sail then it is absolutely useless.

  • Comment number 74.

    I think, having read many of Stephanie Flanders' blogs, that she needs to do a little more to convince that she is holding up the Beeb's reputation for impartiality.

  • Comment number 75.

    37. At 12:34pm on 25 Feb 2011, Edwin Schrodinger wrote:
    4. At 11:08am on 25 Feb 2011, watriler wrote:
    'It does not help that the Coalition does not seem to be able do anything right.'

    "As opposed to the previous Labour government, who could were able to do everything wrong. When will people accept that Labour landed us in this mess?"

    I know it`s hard to get your head round this,a knowledge of history is useful and an interest in ideas.But the so-called mess is a response to an international capitalist crisis, shared to a greater or lesser degree by all capitalist economies.

    Capitalism is subject to boom and slump,it`s in the nature of the beast.This one has been particularly nasty.Alan Greenspan,(Fed) called it "A once in a hundred year tsunami". Mervyn King said, "The global banking system was hours from collapse."

    At the beginning of the recession the UK deficit was the same as the one inherited in 1997,the debt lower,Not an ideal circumstance,but the money went to bring underfunded public services to European levels.Not perhaps an objective you would choose,I think it was worthwhile.

    Using Keynesian tools of crisis management,growth in the UK resumed in the last quarter of 2009.first accelerated and then fell back quarter on quarter.

    It`s capitalism,not Brown.

  • Comment number 76.

    65. At 1:49pm on 25 Feb 2011, Justin150

    Marx envisioned a whole load of stuff much of which can seem fairly potty outside of a historical context. His reputation has been raised too high, largely by people who oppose his views, which tends to result in a rather blasé rejection of the entire cannon of his ideas.
    I don’t really think it that accurate to suggest that these countries sit at Marx’s view of a pre mercantile economy. In any case the world has moved on and ‘globalisation’ brings the impact of capitalism (whether positive or negative) to most countries whatever their form of government or economic system.
    To suggest (not that you were) that the current uprisings (which should be largely celebrated I feel) are entirely separate from the current capitalist crisis would be bizarre.
    Marx might be seem out-dated and retrospectively naïve but he still brings useful analysis to the mix.

  • Comment number 77.

    Stephanie, explain it nice & simple ('cos I'm a bit dim) does this mean that interest rates are more or less likely to rise this year? Cheers.

  • Comment number 78.

    Let's take a hard look at these numbers.

    The fall in business investment was accounted for by an 18% crash in investment in the financial intermediaries sector according to the ONS.

    This is GOOD NEWS. Less investment's by bankers etc releases resources to be used elsewhere.

    The mystery of these number is why the volume of imports rose so much, (rise in imports lowers GDP growth). Looking on the bright side, it may be temporary stock-building

    Graham Cox

    Economist

  • Comment number 79.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 80.

    Marnip wrote: -
    ---------------------------------------------------------------------
    It's actually hilarious to read everyone trying to link everything to economics. The Middle East is not undergoing a Marxist revolution. That would suggest that workers take control.

    They're not asking for that. They're asking for their rights not to be taken away, and to have someone competent in charge of the economy. They want a leader - they aren't envisaging a class system that they want to take over. Just a different leadership.

    "Sometimes a cigar is just a cigar". Get over it. Not everything's a conspiracy theory.
    ---------------------------------------------------------------------


    That is the point I am making, this is a ponteous combined uprising against business interests. They absolutly understand what is ahppening to the world economy. They are the peole at the sahrpest end of it and they are not tkaing it anymore.

    When the knock on effect of their uprising effects our economies, we will feel the same.

    -------------------------------------------------------------------

    Marnip also said:-

    Final point: I find it incredibly disturbing how many people commenting seem to be actively excited about protests spreading through the streets. The idea is by cutting now, we don't go the way of Ireland, Portugal, Greece etc. Stop baiting the apocalypse and get on with your life.
    ---------------------------------------------------------------------


    Ireland, Portugal and Greece are the countries that have put austerity measures in place and have seen their economies tank becasue of it. They are the places in Europe with rioting.

    We are going the same way as shown by the stagflation reported today. When the permanently higher oil prices resulting from the Middle East domino spread to here we will see the same thing.

  • Comment number 81.

    #54 I agree with the need to invest in these areas.

    However, as another poster wisely posted, we need to restrict the ease with foreign companies can invoke hostile takeovers of successful British businesses (e.g., Cadbury's), and exporting their production base.

    One way he suggested would be to increase the percentage share required for hostile takeover from 51% to 70%. Without this protection you are simply subsidising growth for another country's gain because any successful business that emerges out of this investment will simply be taken over.

  • Comment number 82.

    The economy continues in the doldrums and the cuts are getting worse. So why does the Government still pursue the vanity HS2 rail link from London to Birmingham at a whopping £17billion - £160m a mile plus ongoing subsidy. The cost will equate to £1,500 per household. Alternatives provide better cost/benefits but the ego trip for the few continues... HS2 opposition is not a nimby rant - it is an economic disaster affecting us all.

  • Comment number 83.

    @ 8. At 11:30am on 25 Feb 2011, Simon Attwood wrote:

    The economy isn't what you think it is. It's a belief system, a system of faith. When you believe in it, it grows, and when you lack faith in it, it weakens it. It's a very simple concept, why is it so hard to grasp?
    =======================================================

    Because it's not true. You're wrong. For example: - rising prices of oil and other imports. Do you think if I BELIEVE that oil and other imports will be cheaper then that will make it so?

    You're looking around at everyone failing to grasp your "simple" concept.

    Economics is influenced by moods yes - but that's mainly the markets. If demand for oil rises and supply falls, the price WILL rise (along with everything that depends on it). You can BELIEVE what you want.

    You seem to BELIEVE that you've got it all figured out, but that doesn't make it so.

  • Comment number 84.

    Where is the plan to stimulate private sector growth promised by the government? Trying to emulate Ireland by cutting corporation tax won't work as companies are adept at avoiding it in the first place.

    From here:

    http://www.guardian.co.uk/business/2011/feb/25/uk-economy-contracted-by-0-point-6-percent

    I read this:

    "The detail shows that government spending was the only positive growth driver," said James Knightley at ING. "This is fairly worrying given we know about the wave of fiscal austerity that is now starting to hit the UK economy, meaning that we will soon be starting to see negative figures for this component."

    So the government are in the process of pruning the one area of growth but there is no private sector growth to make up the gap. What a surprise.

    As a previous poster said it looks like Darling and Cable were right and cutting public spending this year was a bad idea. I wonder what Cabke has to say now?

  • Comment number 85.

    I think 0.5% for bad weather is probably hideously wrong, but I don't see any value in recalculating this effect or arguing that the economy was essentially flat.

    Certainly the drop into the public sector "productivity" was greater than 0.5% - for example what percentage of school days were lost. As an indicator, simple maths tells me that a school closed for one day in a quarter means -2% in the School's productivity.

  • Comment number 86.

    This is not the worst news today. What would concern me more is that a high end company like Mulberry (we are not talking megamillions here) is saying that it is too difficult to set up a new factory here. They may be just posturing, but if they aren't, we need to be worried that new jobs are not being created. The figures tell us what happened Oct- Dec. I expect Jan - Mar will show a massive improvement distorted by trying to play catch up after the poor weather. April - June will be distorted by continuing instablity in the Middle East and July - Sept will experience a boom due to Cheryl and Ashley Cole getting together again. There is always an excuse. At the moment,GDP is not a key indicator, it is jobs. If people are in jobs they are not needing benefits, are paying taxes, are spending money and are feeling better about themselves.

    GDP has become one of those meaningless targets. If it goes up 10% and unemployment remains around 10% then a high GDP is meaningless. The aim of economic planning should be to produce the maximum number of well paid, long lasting and productive jobs. This will produce a high GDP. The reverse is not always true.

  • Comment number 87.

    Honestly it's obvious. In the last 15 years the economic burden on the younger generation has been increased ten fold. Not only have students needed to pay for course fess and maintenance, but house prices have increased in the UK to ridiculous levels therefore meaning that one, if not two generations will be unable to spend any money over the next 10 years as they have no guarantee of a good income and a huge wad of debt (with increased graduate participation at University the premium of having a degree is negligible, therefore more graduates are having to do postgraduate qualifications - therefore resulting in more debt). There will be several years of famine yet....

  • Comment number 88.

    19. At 11:56am on 25 Feb 2011, tomReading wrote:
    The coalition put the blame on the weather .... The problem is they don't really have a clue what to do as the focus was on the national debt and not the side effects of cutting it. ...

    ----------------------------
    The problem IS the national debt and the side effects of NOT cutting it, which is national bankruptcy. Cutting the national debt is not a policy choice, it is imperative. I think Labour delayed making cuts before the election ( they knew they would lose ) to make it appear that cutting national expenditure was a Tory idea, but even Labour had to plans to cut, the majority of which were delayed until after the election.

  • Comment number 89.

    75. At 2:45pm on 25 Feb 2011, bryhers wrote:

    "Using Keynesian tools of crisis management,growth in the UK resumed in the last quarter of 2009.first accelerated and then fell back quarter on quarter.

    It`s capitalism,not Brown."

    You know, I'm a Keynesian economist. I understand Keynes perfectly well, so every time I hear someone talk like this I can feel my blood boiling.


    First off, Keynesian economies are *mixed*. We had a mixed economy. Stop calling it capitalism, because it was mix, like every other economy in the world. Capitalism didn't run a deficit for, what was it, about 6 years before the crash? The Labour government did. On the state - you know, that thing that means an economy is not perfectly capitalist, but mixed?

    Secondly, you're right, Brown did use Keynesian tools - shame he didn't start 10 years before he did. The idea that you can spend and spend and spend for 6 years, borrowing more each year, then borrow and spend when a recession hits and call yourself a Keynesian is quite frankly, ludicrous.

    Keynesian policy is not something you switch to in the bad times. It is a set of recommendations for *both the good and bad times*. Keynes would have been telling Brown in the "boom" years that he should run a budget surplus, so that you're prepared for the deficit.

    Brown decided to spend and spend and spend, using that money to effectively bribe the public into keeping Labour and himself in power. You cannot use half-Keynesian economics. Brown is not Keynesian, he's irresponsible. Labour aren't socialist, the Tories aren't free market capitalist. Everyone is mixed. The disagreement is over what proportion of the economy should be made up of the public/private sector - that is all.

  • Comment number 90.

    The main reason for not supporting Labour's irresponsible and reckless gamble of continued over-borrowing and over-spending was always that you could never know what would happen in the big wide world to make their policy a disaster for Britain and turn us into another Greece or Ireland.

    Well today we have it with rapidly rising oil prices, due to the tensions in North Africa and the Middle East. And this is most unlikely to be resolved in the near future.

    Thank heavens the coalition didn't listen to the left wing. Otherwise we would now be in far bigger trouble with the economy. At the exact time when Labour actually promised (for what that was ever worth) to reduce our horrific levels of borrowing and spending even more drastically than the coalition.

  • Comment number 91.

    At 12:34pm on 25 Feb 2011, Edwin Schrodinger wrote:
    4. At 11:08am on 25 Feb 2011, watriler wrote:
    'It does not help that the Coalition does not seem to be able do anything right.'

    As opposed to the previous Labour government, who could were able to do everything wrong. When will people accept that Labour landed us in this mess?

    Edwin you need to take off your Tory loving glasses and remember it was not labour who got us into this mess it was the greedy bankers with their performance related pay structure that got us into this mess. They took ever greater risks to ensure they got ever greater bonuses.
    Only a fool or a Tory voter thinks that what was done to get us out of that mess was wrong. Even the Tories agreed it had to be done as the knock on from doing nothing was 3-4M unemployed and a recession the likes of which we only ever see with Tory lead governments.
    Perhaps you should look at other countries that had the same mess and had to take the same measures to see every country had to do the same. The only difference between the UK and the USA ( apart from the USA growing and us going down) is what the condemners have down here with their slash and burn tactics. American was in an even worse situation than us but understood you don't cut like loonies when you need to grow.
    It seams every time we get the loony right (tories) in power we end up in turmoil.

  • Comment number 92.

    83. At 3:09pm on 25 Feb 2011, K756ET wrote:

    No, actually you're wrong. I've done the research myself, and yes, confidence and "faith" affect the real economy. If businesses think things will get worse in the next 6 months to a year, then they won't borrow and economic activity drops.

    Why do you think deflation is worse than inflation? Simple: if people think prices will go down in the future, they won't buy now. Then the economy slows, and prices do fall - just as they expected, but crucially *because* they acted on that expectation.

    As I say, I have done the research and written the report myself, examining the causal effect of economic sentiment on growth in the UK.

    If you really think people don't act on their expectations, then I'm afraid it's you who's living in a fantasy world. This isn't controversial; we've known about it for a long time. Even Keynes discussed 'animal spirits'.

    It's called a self-fulfilling prophecy, and it is common in economics as things tend to have the ability of spiralling.

  • Comment number 93.

    Look here, you doom and gloom merchants are well wide of the mark.
    My own GDP has risen plenty since the arrival of Dave & Co. So much
    that I can easily afford to drop them a few quid. I hope the posters
    they buy with my money will be even better than those of the last
    election. ''I'll cut the deficit, not the NHS'' !!! That's my favourite.
    ''I've never voted Tory but I like their policies on the family'', was
    good too. But, hands of the forests, Dave.

  • Comment number 94.

    Simon and Bryers, I think we are best to stick to evidence and logical analysis to solve our problems rather than belief without evidence and logic, aka "faith".

    It's reckless belief that "things can only get better" so lets have a boom on the back of the credit card and putting our head in the sand that has made our situation as dire as it is. Gordon Brown said one of the most sensible things I have ever heard from a Chancellor in waiting when he was in opposition when he said "only ever borrow to invest, not consume" Unfortunately he then forgot all about this when he came to power.

    Now unfortunately for the Condems we are borrowing to fund our state consumption and pay the interest on previous borrowings for state consumption. We will all have to get off the credit card lifestyle and get back to borrowing only to invest in private and public enterprises that are likely to yield a medium and long term positive return on investment. Sadly we have so much structural debt still that this along with energy and commodity shortages in the next few years will make investment very tough for businesses and governments.

    The government and BOE are trying to steer as smooth a course as possible but I'm afraid that running with the storm will not be possible much longer as we are in imminent danger of being driven onto the rocks by it.

    We charge too much for our labour (particularly investment bankers) and our houses and building land are priced too high to be sustainable. A short sharp devaluation of our asset prices (houses, land, and other property, and a reduction in what we expect to be paid compared to others in the world doing the same job is required but won't happen quickly or by choice. Instead we will have a long depression where these things will happen relatively gradually. We'll keep changing governments and making the same short term choices until reality dawns on a future generation and they start to make aspirational longer term choices just as the Chinese and Indians are doing now.

  • Comment number 95.

    @16. At 11:52am on 25 Feb 2011, Gednorth wrote:
    We have a major economic problem exacerbated by discredited Keynesian inspired £200bn worth of money printing.



    Actually the 200bn of spending entirely REINFORCES Keynes.
    Let me explain...

    Keynes said that to encourage growth in the economy the government needed to print money and spend it.

    Now there is one little point missing here... if you want to encourage growth in YOUR economy you have to spend the money in YOUR economy. It is only when spent in YOUR economy that it creates demand, jobs, tax to repay the debt in a glorious and wonderful upward spiral in YOUR economy.

    If you do what Conservative and Labour governments have been doing since Thatcher and spend money in the GERMAN, American, Chinese, French, Italian, Eygptian, Belgium, Russian, South African, India, Australian.....economies you will create growth THERE not here.

    In fact, taking money from HERE to spend THERE will cause a problem HERE. You reduce demand HERE, reducing demand HERE will cause a rise in unemployment, a need to substitute 'real jobs' (making cars/lorries/ships/computers) with 'fake jobs' (nuclear free zone coordinator etc.), this will cause a spiralling deficit which means tax increases sucking even more demand from the economy, causing .... you can see the problem (For heavens sake Stephanies dad could have written a song or two about it).

    Basically what we have proved is that Keynes was RIGHT. We have SEEN the effect of spending money in an economy (China, India, Germany, most of Europe and even the States are growing - partly helped by our largesse) and we've seen what happens if you suck money out of an economy (we need only look out of our own windows).


    The ONLY way to fix the British economy is to SPEND UK tax payer money HERE and to force the two banks we OWN to let business borrow at a sensible interest rate (say 1%). We need to make the low interest rate a POLICY and LONG TERM giving business comfort in planning investments of several years.

    I wouldn't mind if the government took more tax from us (who might buy Chinese clothes) and spent it on British goods. But look at the Ark Royal, scrapped to 'save money' its scrapping is COSTING unemployment benefits for several hundred sailors and repair staff and COSTING US MORE because we are PAYING a Belgium company (not a British one) to take it to an Egyptian (not a British) port for scrapping...

    I'm afraid this government is as brain dead as the last, pretty much every economic correspondant/editor needs to look at the REAL world not some incorrect text book. And most of all KEYNES WAS NOT WRONG!

  • Comment number 96.

    sandy winder and others

    How are the public spending cuts actaully woking out for Ireland and Greece, Spain and Portugal?

    Are the bond vigilantees rewarding these governments with low bond yields for their austerity? Do the countries you mention have growth, low unemployment, faster public sector debt repayment?

    The answer is no. These countries are train wrecks because of their spending cuts. And that is what we are seeing happening here now. The troeis are putting these policies in palce, not for the benefit of the UK population, but for the benefit of their funders in finance and multinational business. The tory plan is to sell off the RBS and LLoyds in a few years time, reduce taxs and make us live in a thrid world hovel with no public services, in the servitude of the global elite.

    The correct response to what is happening in the UK is a series of big reforms-

    My advice to leaders is change your ways now and diffuse the situation. measures you should take might include (but are not limited to)-

    Widespread changes to the rules on funding of political parties

    Far reaching reforms to media ownership

    Changes to tax policies

    Outlawing of off-shoring

    Changes to the indemnities available to auditors

    Disbanding of the Corporation of London

    True Nationalisation of the Bank of England and end to the issue of UK Bonds bearing interest

    Haircuts on all previous Sovereign bonds

    Changes to accountancy practices to ban the presentation of multinational corporation results as aggregated across


    Retention of either Lloyds or RBS, to be run as a truly nationalised, not for profit state bank


    Export controls on electronic currency

    An end to most forms of derivative trading

    Separation of retail and Casino banking

    Increasing of contingent capital requirement of banks

    Limitations on senior pay (through a statutory high pay commission or very progressive taxation system)


    We wont get these things without demanding them so demonstrate peacefully on March 26th, petition politicians by using www.38degrees.org.uk and generally kick up a slacktivist fuss until our children get a secure future based ont heir needs rather than the wants of the global elite.

  • Comment number 97.

    Stephanie's link sub-editor titled this piece 'recovery wobbles' - time will tell if the recovery is in fact over and the double dip is on its way.

    What I suspect is happening is that despite the once in a millennium economic two year long stimulus we are in fact irresistibly entering the first years of a Long Depression. Why? Because the property bubble has not been deflated and, until it is, the economy cannot recover. Figuratively the UK economy is trying to run uphill carrying an elephant!

    On the other hand the uncertainty and error in the ONS figures hardly allows them to say what is actually happening. Perhaps in a decade or twos time we can get to the real figures! It actually doesn't matter really - what matters is how the British people feel about what is happening. And Dave and his men have been talking the country into a depression ever since they got elected so it would be a big surprise if people did not react appropriately - no matter what the figures said!

  • Comment number 98.

    There are some wise comments from folk who are beginning to see the light re the CONDEM govt.It seems they couldn't fight their way out of a paper bag.
    I urge all contributors and readers to get out and vote in the May elections.There is now only one opposition(in England).
    Send this inept Government a message loud and clear!

  • Comment number 99.

    I suspect it was the weather that caused the contraction.

    Our business had a disasterous December as we just couldn't get any vehicles on the road.

  • Comment number 100.

    If the reaction to a 0.1% downward adjustment is proportional, then god help those reactions when the figures covering the second and third quarter are posted. These quarters will begin to show the effects of higher taxes (VAT) reduced Tax Thesholds, Job Losses (and thus unemployment costs coupled with a drop in employed taxation)wage constraint's (reducing consumer spending power) It does'nt take a brain sprain to figure out that the worst is yet to come. So batten down the hatches everybody, because the final nail will be a rise in interest rates which will deliver the 'coup de gras' and send us into a deep recession. Silly thing is the government have been warned many times over, but they are not listening, and as such, they will not have the luxury of a Labour blame figure.

 

Page 1 of 5

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.