Farewell to the mother of all depressions

 
Brixton High Street

The British economy is now officially 0.2% bigger than it was at its last peak, in the first three months of 2008.

So, as I mentioned earlier this week, Britain's longest depression since serious record-keeping began is now officially over.

Plainly this is good news (and do read my earlier note for reasons why you probably won't be feeling as prosperous as you did six years ago, or why the actual moment of depression's end will probably turn out to have been a bit earlier than currently thought).

Here's one positive knock-on: an unexpectedly large growth in profits announced by Royal Bank of Scotland this morning - which has boosted RBS's capital and share price, and perhaps means taxpayers' losses on the eventual privatisation of the bank won't be as ginormous as feared.

So what kind of recovery has this been?

Well it has been completely dominated by our service industries.

Which should not be a great surprise since they contribute more than three quarters to our national output.

Glass half full?

Without a resurgence in services, there would be no prospect at all of the UK regaining the income lost in the great crash of 2007-8.

But nonetheless many will be slightly depressed that although the service economy is now just under 3% bigger than it was at the peak, manufacturing is still more than 7% smaller, and the production industries as a whole have been diminished by 11%.

As I have bored on about for a while, although it is heart-warming to see UK manufacturing growing right now, there has been no rebalancing of the economy back towards the makers.

Also, within services, the contribution of shoppers to the recovery remains immense - and the retail trade made the biggest contribution to the latest quarter's services surge.

That suggests we may be at a premature end to households' attempts to strengthen their finances and pay down debts - and shows that growth in the economy remains perilously sensitive to the cost of money.

Or to resume my habit of telling you stuff you know, the scale and pace of interest rate rises will have a hugely important bearing on the sustainability of this recovery.

That said, the glass is definitely half full today.

Boom and bust

The UK is growing much faster than all the UK's big rich competitor economies, including Germany and America.

And although it has taken us much longer to grow above the past peak than it did for the US and Germany, the original contraction in our economy was much sharper than for them - because we were so dependent on our bloated, hobbled banks.

Here is the measure of how and why, for the UK especially, a depression caused by a banking crisis is so much worse than other economic contractions.

We are now 25 quarters, or six years and three months, since the slump began.

After 25 quarters had elapsed from the very painful downturn of 1979, the contraction that defined the early years of Margaret Thatcher's government, the British economy was 8% bigger than its previous peak.

And 25 quarters after the recession of 1990, that caused by Nigel Lawson's boom and bust, the UK was 16% larger than its past record level.

Today, 25 quarters on from a great crash that many blame on Gordon Brown's complacent attitude to City regulation, the economy is more-or-less the same size as it was.

Lest we forget, this has been the mother of all modern depressions.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +3

    Comment number 873.

    864. AfA
    We're all unequal, unique, with personal traits in varying degrees. It is these qualities that make us distinct. That make you you and me me. The same goes for every other inhabitant on this rock. It's beautiful, not something to loathe. We play to our natural abilities naturally, to get ahead.

    "The worst form of inequality is to try to make unequal things equal." - Aristotelian axiom.

  • rate this
    0

    Comment number 872.

    865. Donkzilla
    "I used to be an anarchist, then I got hit on the head with a hammer and became a capitalist."
    =
    Anarchy, life free of the State, and Capitalism in its purest form is markets also free of the State. In essence Capitalism is anarchy.

  • rate this
    +1

    Comment number 871.

    Well said Robert.... no more boom and bust.

    You are trying us aren't you? lol ;-) !!

  • rate this
    0

    Comment number 870.

    "Phillips scrounged a variety of materials to create his prototype computer, including bits and pieces from war surplus such as parts from old Lancaster bombers. The first MONIAC was created in his landlady’s garage in Croydon at a cost of £400.

    Phillips first demonstrated the MONIAC to at the LSE in 1949. It was very well received and Phillips was soon offered a teaching position at the LSE."

  • rate this
    0

    Comment number 869.

    867. Phil Dawson
    "yes"
    =
    So we agree, central banks price fix money, monthly no less :)

    "I think you object to the v existence of central banks"
    =
    Considering government can't even get the price of milk right, how can it get our currency's price right?

    "Australia" too has suffered too. Their economy is freer than ours too.

    What did you think of Peter?

  • rate this
    0

    Comment number 868.

  • rate this
    0

    Comment number 867.

    857.Henry Hazlitt "It is the only reason; central banks are the 'only' ones price fix currencies interest rates, the price of money." = yes the price of money but I think you object to the v existence of central banks

    "It intervened already, via its central banks, and other entities, per Peter Schiff; http://goo.gl/UTc9fs" = countries like Australia which had greater regulation suffered less.

  • rate this
    -1

    Comment number 866.

    Without ´social inclusion´ as is practiced in most northern European countries --the UK has little hope to solve its problems.

    --the ´them and us´ is a continuing failure --that few are willing to admit, for lack of objective comparison.

    --Greece, Spain ,Portugal, Italy etc --are the holiday destinations --and source of knowledge at best.

    `The island of the un-informed´

  • rate this
    0

    Comment number 865.

    Well I'm making loadsamoney, seriously big Wonga, I'm loving it. All through the Thatcher years I lived in a hippy bus and squatted. I used to be an anarchist, then I got hit on the head with a hammer and became a capitalist. Now I'm raking in a couple of grand a week after tax. I'll never vote Tory in my life.

  • rate this
    -1

    Comment number 864.

    Tanglewood @860
    "Clinton
    forced banks
    to lend to people
    who would have failed
    every test of credit-worthiness"

    Hence need to make every citizen (non-lazy, non-criminal) equally credit-worthy, in agreed equal partnership able to count on their equal income (& FREE to move to better work if redundancy threatens or inspiration suggests), of 'maximised' VALUE. Who missed the point @852, I wonder?

  • rate this
    +2

    Comment number 863.

    We're no where near finished with this depression. National Debt is up almost 50% under Cameron which will have to be paid back at some point.

  • rate this
    +1

    Comment number 862.

    We may have recovered temporarily, but this is the first of a series of economic oscillations, as we head towards an era of scarce and expensive energy.

    Politicians talk a good game, but once a gap appears between global oil supply & demand, growth (upon which the UK bases it's long term strategy) will not be physically possible.

    All we've done is bought the UK a little time - nothing more.

  • rate this
    0

    Comment number 861.

    860. Tanglewood
    Peter articulates it well, including the history of government regulations causing "moral hazard;" http://goo.gl/UTc9fs

    What do you think of what Peter said?

  • rate this
    0

    Comment number 860.

    #855: "(government) caused the crisis by allowing irresponsible lending i.e. by not intervening"

    Except that one of the key areas of "irresponsible lending", and the resulting markets in sub-prime mortgages, *was* government intervention: the Clinton administration's Community Reinvestment Act that forced banks to lend to people who would have otherwise failed every test of credit worthiness.

  • rate this
    0

    Comment number 859.

    How the heck is the UK going to get out of this mess?

    At the best it will ´limp on´-- at the worst it will crawl on its knees.

    The society is crumbling -- with Brit against Brit and ´Services´ (except banks) gasping forward.

    Privatizations of everything possible has shown its failure.

    Societal problems cannot be affected either with interest rate changes or social benefit alterations.

  • rate this
    0

    Comment number 858.

    856. fuzzy
    Read those books, or at least check out the clip @850, and the brilliant Peter talking with Cornell West @857. Couldn't hurt ;-) G/nyt.

  • rate this
    0

    Comment number 857.

    855. Phil
    true that does affect currency but that isn't the only reason interest rates are set.
    =
    It is the only reason; central banks are the 'only' ones price fix currencies interest rates, the price of money.

    "it caused the crisis by allowing irresponsible lending i.e. by not intervening"
    =
    It intervened already, via its central banks, and other entities, per Peter Schiff; http://goo.gl/UTc9fs

  • rate this
    0

    Comment number 856.

    850.Henry Hazlitt

    Good website, I read it occasionally. But, if you think Gold is as vulnerable as bitcoin, you really need to read the above :D
    ===
    Mises is the past, as is the the Austrian school, all theory - no field tests - "proof" by confirmation bias. The future is Lin Ostrom's ideas, tested in field and lab - and modified in the face of new evidence - it's called science ;-) Good night.

  • rate this
    0

    Comment number 855.

    854.Henry Hazlitt "What do you think our central bank does every month when it sets the interest rate?" = true that does affect currency but that isn't the only reason interest rates are set. Because it affects currency isn't a reason for not setting interest rates.

    "They'd be wrong, government caused the crisis!" = it caused the crisis by allowing irresponsible lending i.e. by not intervening

  • rate this
    -1

    Comment number 854.

    851. Phil Dawson
    With floating exchange rates I don't think currencies were being fixed by the authorities.
    =
    What do you think our central bank does every month when it sets the interest rate?

    "Many would say government non-intervention in bank regulation was the problem not intervention in the markets."
    =
    They'd be wrong, government caused the crisis!

 

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