Recovery in rehab


The BBC's Economics Editor Stephanie Flanders says the eurozone will play a big role in the UK's recovery

Perhaps we should think of another word for it. In two and half years of "recovery", the UK economy has recovered only 45% of the output lost during the recession.

If today's GDP figures are right, we didn't recover any output at all in the fourth quarter of 2011 - we lost about £750m's worth (give or take).

The broad message is the same, even if it is a slightly larger contraction than expected. The UK economy is flat. But that's enough bad news to be getting on with, 10 quarters after the steepest recession of our life time is supposed to have ended.

In the production industries, which helped drive the fourth quarter figures downward, output is now 2.6% lower than it was at the end of 2010.

The folk at Capital Economics have started to use another word for it: Recession.

In their response to today's figures, they say: "Our bet is that the UK is now back in recession and that the economy will continue to contract for most of this year".

The Centre for Economics and Business Research has this: "Today's data suggest that the UK is probably in the midst of a double-dip recession and we expect the economic picture in 2012 to remain gloomy".

Others are not sure that this is the start of a serious double-dip, but it's a reflection of our uncertain times that no-one can exactly rule it out.

We have this, for example, from Chris Williamson at Markit: "While the UK clearly faces a clear risk of sliding back into another recession, which is commonly defined as two consecutive quarter of declining GDP, there are growing indications that any downturn is likely to be mild and short-lived".


We do know that this figure is likely to be revised - one way or another - and that recently, the average revision to this first estimate for GDP has been creeping up.

According to today's release, the average absolute revision over the past five years has been plus or minus 0.27 percentage points. At the start of the recovery, in the autumn of 2010, that same five year average stood at 0.19 percentage points. Going further back - to 1998 - Mr Williamson claims the average revision has been 0.5 percentage points, up or down.

It's always been harder for the statisticians to get things right when the economy is "on the turn". History suggests they tend to underestimate the fall in output going into a recession, and underestimate the rise when we're coming out.

The problem for us now is precisely that we don't know which category we fall into: Are we still climbing uncertainly out of the 2008-9 recession, or heading for a new one?

Further stimulus?

There are tentative signs for hope. The main PMI business surveys were very flat for most of the fourth quarter, but then picked up significantly in December. The trade figures haven't been too bad, either (surprisingly so, given events in the eurozone).

For all the dark warnings from the IMF yesterday, there is a growing feeling that the eurozone crisis may have moved into a new phase. It's still chronic, on this view, but not life-threatening. This is the feeling I identified, somewhat to my surprise, in the days after that disappointing leaders Summit in early December.

Thanks to the European Central Bank and its support for Europe's banks (and, indirectly, its governments) that mood of cautious optimism has since been slowly taking hold in the financial markets. It's not that anyone thinks the crisis is over, merely that, from a global standpoint, it might just be contained - at least for a while.

We shall see. But clearly, what happens to the eurozone will have an enormous impact of whether the UK is more or less on the road to recovery for most of 2012, or continues to slide backwards.

Interestingly, the minutes of the January meeting of the Monetary Policy Committee (MPC) show the Committee still not unanimous in supporting more central bank action - quantitative easing - to support demand. But the governor seemed to suggest clearly in his speech last night that he was in favour. If a majority of the MPC weren't persuaded before, I suspect these GDP figures - and the continued fall in inflation - will do the job.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 117.

    4 Hours ago
    Growth was higher under Labour because money was being borrowed to pay for current public sector expenditure like salaries.
    Actually it was private debt that fuelled growth not public.

    Private debt is currently (400% of GDP ) 6/7 times bigger than Public.
    Private debt needs to be deflated now -and not by inflation ( 15yrs )
    BOE raise IR now.

  • rate this

    Comment number 116.

    .. All because it ignores the role of debt. The crisis is set to get significantly worse this year.

    actually they're concentrating too much on debt, the debt can't be fixed in a year or even 10, concentrate on building the economy, where short term changes can make a difference, rather than debt where they don't, then the debt will eventually be taken care of as WWII debt was

  • rate this

    Comment number 115.

    Shows how woeful coventional economics is by the fact that it failed to predict this crisis (unlike Steve Keen and a few others), and keeps claiming we are recovering. All because it ignores the role of debt. The crisis is set to get significantly worse this year. A 10year+ depression is staring us in the face.

  • rate this

    Comment number 114.

    @1 "I see that Obama has decided it is time to go after the criminal activity that led the US into this mess."

    The criminals are still very much in charge and totally surround Obama. Money printing continues apace and it is handed out like confetti for their friends to cover their losses. Everyone else suffers. Don't get fooled.

  • rate this

    Comment number 113.

    What do you mean, recovery in rehab? We've never been out of recession since 2008. If you have a graph that sharply declines and you then get a bottom and a few slight rises that is not a recovery.


Comments 5 of 117



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