Domestic economy in recession; Big Mac sales booming!
Remember the day you saw that big fat zero: this is how much the UK economy grew between April and June. Nothing. Zilch. And it gets worse.
Once you drill into the figures, whole sectors of the UK economy are shrinking, and if you strip out foreign trade, the recession is not a technicality, it's a fact...
If you look at the domestic economy only, stripping out imports and exports: this has clearly been shrinking for the past six months.
The major factor in the fall in growth is the squeeze on people's spending power: household bills have risen 8%, food bills by 12% and car fuel by 25%.
But real wages, once you strip out inflation are falling, and sharply.
Downturns are part of the economic cycle and no government or central bank can stop that; what they can do is see it coming and adjust policy to meet it; and here's the problem. The government's predictions on economic growth now look way out.
In March, in the budget, Alistair Darling predicted the economy would grow at 2% this year and 2.5% next year. Last week the Bank of England's forecast was significantly lower: 0% - and lo it has come to pass.
In fact, thanks to HSBC's sharp eyed UK economist Karen Ward, we know that even this top line figure could be too optimistic. She has spotted a 2.8% fall in financial intermediation services last quarter - and here I must issue an "its complicated" alert because this has already made my brain hurt:
"As I mentioned in the earlier note: a 2.8% fall in financial intermediation would have taken 0.2pp off quarterly growth. By the current accounting standards, this is not incorporated (or more technically was removed to a large extent by +0.17pp cont. from the adjustment for financial services), but it may be incorporated in September."
So the economy may really have shrunk in any case, and we will find out one way or the other in September.
But what does it feel like out there on the streets: well it does not yet feel like one of the big, gloomy economic shrinkages we saw in the early 80s or 90s; and retail sales keep turning out better than expected. So why?
Stats people are saying a lot of retail sales are being driven by tourists. That's real, not illusory, but again the core, UK generated spending power may be falling faster than the top line figures suggest.
Here's something else interesting. Faced with a collapse in spending power, consumers are switching their behaviour to the cheap and cheerful.
McDonalds has reported double digit sales growth and is serving 2m MORE people a month this summer than last summer and has taken on 4,000 extra staff.
There's only two things policy makers can really do: they can cut interest rates here at the Bank of England; or they can cut taxes at the Treasury to put more money in our pockets; problem #1 is doing either of these things is quite hard under the current rules; problem #2 is that if Alistair Darling DOES give us all a tax cut, the people a the Bank may feel duty bound to cancel it all out.
Why? Because the Bank's projection of inflation meeting its 2% target within two years relies on there being flat growth. If it thinks a tax cut will stave this off it has to either put interest rates UP or hold them for longer.
At the end of the day, the Bank, though independent, obeys a remit set by Alistair Darling. And there's a growing chorus in the banking business that thinks policymakers have lost the plot. What's interesting though is that the political class is united in defending the current remit and its hawkish interpretation: nobody wants to look "soft on inflation". But the City is screaming for a rate cut and really bearish economists are warning of a Japan style stagnation unless monetary policy is relaxed.
Technically a recession is two quarters of negative growth. Even if we get one, the UK economy still bears the marks of sixty-odd quarters of uninterrupted growth.
But that means spotting a recession and dealing with it are tests that neither the Treasury, nor the Bank of England has had to face for nearly two decades. We'll be discussing some of these issues with Labour and Conservative front benchers tonight.