Lessons from the latest growth figures
Once again, the consensus has been consigned to the dustbin. We knew that the growth rate in last quarter of 2010 would be harder than usual to get right: as it turned out, none of the leading City economists even came close. The lowest forecast was growth of 0.2% - instead the first estimate is for a contraction of 0.5%.
As Joe Grice, the chief economist at the ONS points out, this figure needs to be treated with even more caution than usual - thanks to the weather. He reckons that, without the bad weather, we'd be looking at a figure of 0.0%: no contraction, but no growth either. But even that calculation must surely come with a lot of health warnings attached.
As I noted at the time, the fact that the bad snow came so close to Christmas meant there was a quite a strong possibility that the short-term loss in sales on the High Street - and online - would not be recouped. If you don't buy a Christmas present before December 25th, there's a fairly good chance you won't buy it at all.
What are the broad lessons of these figures?
One is that the "two speed recovery" is even more pronounced than we thought. Output in the production industries increased 0.9% in the fourth quarter - leaving output in this part of the economy 3.6% up on the year. Output in the service sector, by contrast, fell by 0.5%. The ONS estimates that most of the impact of the snow was to services; without the snow, services output would have been 0.1% lower - in other words, broadly flat.
Long-term, it is good news that manufacturing and the like are strengthening, relative to the service sector. It is also, incidentally, good news that the pound has fallen in response to today's figures. The recent rise in sterling, on the expectation of rate rises, has not been welcome at all. But, you can definitely have too much of a good thing, too quickly. Services still account for the lion's share of Britain's economic activity, and this recovery won't get far without them.
The second is that everyone - and it has been nearly everyone - is right to worry about where Britain's growth is going to come from in 2011, especially now that higher than expected inflation has a dealt a further blow to household budgets. As I mentioned in my last post, real household income in the UK at the end of 2010 was lower than it was 5 years ago. And there will now be further hits in 2011 from rising prices, higher VAT and real pay cuts and job losses and in the public sector.
Usually, we would expect a strong bounceback in the first three months of 2011, just as the economy bounced back after the bad weather in the first quarter of 2010. But that assumes that households hold on to their spending plans, despite all the bad news on VAT and prices. You have to wonder whether they will instead seek to cut back.
Finally, we are reminded, not for the first time, that these quarterly figures can and will bounce about a lot in the early months of the recovery. Just as it would have been foolish to break out the champagne after that surprising 1.1% growth figure for the second quarter of last year - no-one should be writing any obituaries for Britain's recovery on the back of today's news. But Mr Osborne has said they are very disappointing - and that they certainly are.
Update 1217:The opposing camps at Westminster have naturally rushed to offer their take on today's figures. Ed Balls, for one, can't resist pointing out that the quarterly growth had slowed sharply since Labour left office. But he can't seem to decide whether these figures are the government's fault.
Initially, it seems that they are not to blame. The statement put out by the shadow chancellor's office says that the fourth quarter figures "are all the more worrying because they cover the period before the government's VAT rise and sharp public spending cuts have even begun". That seems right: the construction sector may have been affected by the sharp slowdown in public investment, but overall, the coalition's modest additional spending cuts for 2010-11 will not have had a large impact on these numbers (indeed, we had that surge in public spending in November).
But, later, Mr Balls asserts that "now we are seeing the first signs of what the Conservative-led government's decisions are having on the economy". He does not seem to be able to decide whether the economy is weak as a result of the coalition's decisions, or in anticipation of them.
Sources close to Mr Osborne naturally wish to stress the provisional nature of the figures, and the impact of the weather. More interestingly, perhaps, they say we should be encouraged by what's been happening to the the claimant count, and to tax receipts. According to the Treasury, each of those has provided useful early warning, in the past, that something was going seriously wrong with the economy.
The claimant count actually fell very slightly in December, and tax receipts throughout the quarter came in almost exactly in line with the official forecasts - which, in turn, were based on the OBR's forecast of modest growth. That is not something you often observe in a shrinking economy.
There's been some support for this assessment from independent commentators - though remember they are the ones trying to explain why their forecasts were so wrong.
This is what Nida Ali, economic adviser to the Ernst & Young ITEM Club, had to say about today's public finance figures:
"Tax receipts seem to be growing nicely and it's interesting to see that VAT receipts were up almost 9% on last December. Though part of this reflects the higher VAT rate (17.5% against 15%), it also suggests greater consumer activity in December than other sources have reported."