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GDP up 0.1%

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Paul Mason | 10:07 UK time, Tuesday, 26 January 2010

First, well done Danny Gabbay and his economists at Fathom for predicting the ONS figure would come out at 0.1%. That's not the same as predicting actual growth but correctly modelling how the ONS will measure it.

That 0.1% is such a small recovery that I am now wondering whether, if had had eaten fewer Mars bars in December I could have single handedly sabotaged it.

Now, what does it mean? It means that - even though the 0.1% is even across sectors (service, manufacturing) it is highly likely that we're going through a two-speed recovery, the north stagnating, the south growing faster.

The reason we've recovered at all seems to be a) low interest rates, b) numerous micro schemes to stop foreclosures and job losses from spiralling into a deeper recession, c) £200bn quantitative easing, d) the falling pound and e) car scrappage schemes across Europe. Also discretionary public spending and the VAT cut.

Now: the public spending is set to be reined back and the VAT cut is over. The car scrappage stops this year and the low interest rates cannot last forever. Sterling devaluaton - not being a government policy - is prey to global conditons and could reverse (indeed had slightly). In addition, insolvency experts are telling us there are numerous retail businesses on the brink - again particularly in northern Britain.

We'll be exploring some of this patchyness and scratchyness tonight on Newsnight, with a cast of politicians, economists and businesspeople. If you've got a strong argument to make, hit the comments button. I've been in the Pennines talking to businesses for whome the economic climate still feels as raw as the weather.


  • Comment number 1.

    Cynic that I am, I think the covert plan has - somehow - worked, in a political sense. I believe that the VAT changes and the card scrappage schemes (and the timing) were all planned to make sure that, just before the election, there would be a big enough surge in demand to inflate the economy, which obviously worked just enough to produce a positive result in Q4. I assume that, technically, another recession cannot now be declared until October 2010 (3 consecutive quarters of shrinkage), so they'll be able to say that they brought us out of recession and we're not in recession during the election campaign - even if the economy becomes negative again next quarter (which it probably will).
    If this was their plan, do they think we're all stupid enough to fall for that argument?
    In any case, I don't see why anybody can call an end to any recession until we've had 3 consecutive quarters of growth (i.e. the opposite to what counts as a recession).

  • Comment number 2.

    200 billion in quantitive easing, the lowest interest rates in history since the druids took out a loan to build Stonehenge and millions of us driving around in our new shiny partially state-funded cars...

    ...and all we get is a lousy, terrible 0.1%! Is that it?

    Oh well, at least house prices are rising ;-)

  • Comment number 3.

    Why does it take two periods of shrinkage to go into a recession but only one of growth to come out? I'm expecting to have a negative figure for Q1 this year.

  • Comment number 4.

    Btw, just before anyone misunderstands my previous post - I think the UK, which has had one of the biggest housing bubbles in the World, is about to face up to the type of housing crash that other countries have gone through and are continuing to go through.

    There will have to be massive public sector job cuts in the coming years and unemployed people cannot afford to pay mortgages let alone to invest in properties, trade-up, etc.

    The lunancy of building an economy on easy credit - read debt. Of having a massive expansion in public sector jobs - is it true that 7 in 10 people in Wales work in the public sector? And of believing that you can base an economy on house prices are all about to be 'found out'.

    Not so much a bubble as a big bang about to happen. Light blue touch paper, stand well back. Observe.

  • Comment number 5.


    Have you looked at Steve Keen's debtwatch lately:

    Steve's premise is that debt contributes substantially to GDP. This gives the appearance that everyting is fine until the crisis hits, as in reality:

    Total consumption (GDP) = Real Production (genuine wealth creation) + change in debt (i.e. desperate attempt to generate Effective Demand)

    Is Newsnight prepared to field Steve? Radio 5 Live is prepared to let him loose on the British public?

  • Comment number 6.

    terrorists and foreign would be invaders can only dream of doing to the uk what the financial oligarchs/political class have done to the uk. They have destroyed businesses and factories just as surely as any bomber either from the ground or the air could have done. Yet its all legal. Not only that we [the millions] are paying for them [maybe only 200 people involved?] not to go bust that will take 50 years to work off while they pay themselves huge wages derived from QE because they are 'brilliant'. So for maybe 200 people everyone else has to pay?

    if you trace out the web of political and financial industry relationships what would we find?

  • Comment number 7.

    Low interest rates do NOT help everybody. My savings income has dropped 50%, as a result I have stopped spending.

    The UK seems determined to come to the rescue of those that least deserve it.

    Bankers, enough said.

    Why are 330,000 potential repossessions being supported by my tax money to make houses more unaffordable for someone renting like me?

    Why are empty commercial properties getting council tax breaks? This disadvantages viable businesses by keeping their costs high and having them live next to empty shops and so reducing their customer streams.

    Labour are saying be prudent and we will let you suffer be feckless and we will help you.

  • Comment number 8.


    Nothing to add.

  • Comment number 9.

    Can one of your experts please explain what the FSA is supposed to be doing and nudge them to see if they have nodded off at the wheel again?

    During the housing boom years there were millions lost in mortgage fraud and people were allowed to borrow more than they could afford to pay. Northern Rock's 125% mortgages! Where were the FSA? In a deep coma?

    Now I'm hearing that banks are allowing people to borrow five times joint incomes. A joint income mortgage is two chances of someone losing their job - before you think of pregnancy. It used to be three times main income plus one times second income. This reckless lending is largely due to Labour forcing their banks to commit moral hazard in a deceitful attempt to make people think everything is back to normal i.e. another asset bubble! But why are the FSA allowing it? Why have they not brought in strict rules on salary multiples and LTVs? What is the point of a regulator who instead of regulating just tells the banks - carry on chaps, we will all be out of here with our bonuses before this next wave of the over-endebted cannot afford to pay their debts back.

  • Comment number 10.

    Here is a quick reminder of a few points I made yesterday (along with substantiation):

    1) the economies of the West have disguised a stagnant economic business model behind financial gerrymandering (see Steve Keen on how we have used Debt to fund a substantial part of our GDP!)

    2) This crisis is the ghost of misdemeanours past coming back to haunt us (i.e. The Fisher Debt deflation theory, expanded on by Minsky and more recently Steve Keen)

    3) The private banking system has already plundered the public purse (see Haldane article referenced in previous blog on scale of the intervention, "over the past century there is evidence of a ratchet in the scale and scope of state support of the banking system")

    The story goes that the banks were able to make excessive returns by taking excessive risks without any inherent backing of their own. Instead, when the prospect of having to realise losses occurred they went running to the Gvt for help. However, this was the same Gvt that actively encouraged the behaviour in the first place because it made the economy appear far healthier than it actually was.

    "The high leverage strategy pursued by UK and European banks rather effectively privatised gains and socialised losses" (Haldane article pg5).

    The BoE fully understands the ramifications of this, yet the politicians are desperate to keep headline GDP (just) above water! Vince Cable quite rightly pointed out the ridiculous ratio of bank assets being 4 times GDP on Newsnight yesterday, and was scoffed at when he said it was near Icelandic levels (UK is actually 5-6 times GDP when you look at the Haldane article, whilst Iceland were about 10-12 times GDP, so in terms of order of magnitude he wasn't far off).

    To ignore (or ridicule) this objective assessment of our situation is just to bury one's head in the sand.

    As #9 points out the foolish lending practices are still going on under our noses!! We are just asking for a great spanking on the bond markets very soon!

  • Comment number 11.

    Focus on employment, and real employment issues instead of a discussion framed by politicians.

    The range of mechanisms of opening to cheap foreign labour mean that workers are not going to recover anything in wages or in labour conditions, and can never get out of the 'flexibility' they have been trapped into by the recession, ever, unless those rules are changed (I am obviously not including bankers in this. It is an out and out class project).

    This is the biggest historical thing going on, but there is no focus on it or joining up of that range of mechanisms, to show people how dire the picture is. And it is set to become more so - unless the rules are changed.

    Just to spell it out:

    - free movement of labour in EU
    - posted workers as 'service suppliers' (an EU mechanism for EU firms, but the workers can actually come from anywhere)
    - UK labour migration rules - for intracorporate transferees, phoney skills shortages, 'student visas' with a never ending NI certificate etc
    - EU trade agreement commitments that allow transnational firms to cash in on the international wage differentials.

    All destrying any power of workers to defend themselves. Clear race ot the bottom.

    Attention, attention

  • Comment number 12.


    When I posted my earlier comment about the useless FSA I didn't know they had proposed some new rules today to prevent people from being repossessed. This is like the FSA saying it was our fault we let you get into debts you cannot repay, so we will try help you. Of course given the higher LTVs and salary multiples they are allowing now, they are lining up the next set of over endebted that will need help in the future. This at the cost of any taxpayers who are prepared to live within their means.

    It is very clear that the UK does not have any effective financial regulation. Labour, the FSA and Bank of England seem intent on Moral Hazard.

  • Comment number 13.

    I hope there are no estate agents on tonight's show - today several BBC TV and radio programmes seem to have turned into free adverts for estate agents trolling their vested interests.

    Why worry about manufacturing jobs, why worry about engineering jobs, why worry about information technology jobs? None of these are needed as long as house prices continue the bubble expanding... and estate agents get to spin their spin and make their commissions.

    Serious economists only please!

  • Comment number 14.

    Is the £200 billions QE figure boosting ONS growth stats? I know that the BoE growth calcs and those in the PBR incorporate it as a boost to growth. Adam Posen says that it doesnt work in that way. The porttfolio effect hasnt happened in the way hoped. Its log-jammed by banks and debt pay-down.

  • Comment number 15.

    On other BBC Economics blogs I have been one of only of a handful of Economic optimists..... and it is very hard being one .....every bit of cheer gets shot down in flames, sometimes by salaried researchers from Tory Central Office, sometimes by disgruntled savers on low interest rates, sometimes by disgruntled bank shareholders, scarred pension victims, sadly unemployed professionals and others excluded from the mid-Nineties to mid-Noughties property boom which means most young people.


    The ONS Q4 initial estimate of 0.1% represents a change in the value of the ONS initial estimate of growth of the economy from their initial Q3 estimate (at -0.4% now updated to -0.2% and still improving! ) of 0.5%.
    So it is reasonable to expect an uplift in the updates for Q4 09 ONS estimates to at least 0.4%.
    This quarterly change in the rate of growth of initial ONS estimates of 0.5% is actually quite a lot.
    In fact this Q4 result is exactly how economies look at the tipping point to recovery.
    It looks tiny but it is actually massively important.
    We are going to see a big change for the good in UK fortunes this year.
    But it is a fact that growth is not uniform and it is not palindromic: Those who will grow are not necessarily the same as those who have shrunk...... if your business has been badly damaged it cannot grow back to the same size it was quickly.
    These people are still feeling the pinch.
    But other people.... borrowers with lower mortgages, people paying off credit cards, and some businesses, have been doing well and will reap the rewards of the recovery.
    They do not say much, they are the rather quiet souls who prefer to keep their new fuel efficient cars in the garage.
    They keep Schtum , and everyone in what I call Schtumland is doing quite nicely thankyou. And there are a heck of a lot more of them than you think.....they have been the ones in Tesco recently.They are waiting to move house, they are waiting to open a new business.
    There was a crisis and fall in asset valuations ,let's call it surveyor confidence, it is the fall in asset valuations which has been so difficult to change and it was the single most important factor minimising the effect of QE.
    But the word on the street is that it is re-emerging........
    Look at development surveyors DTZ , which had shares worth £8.35 start of 2007, but only 19p in Dec 2008 and are now sitting ( after a slight fall from 0ctober ) at 77p....which shows that confidence in the future of asset valuations is still not great but a lot better than it was.
    Companies like DTZ made hundreds of surveyors redundant ,some of whom are still not working, but some are setting up their own companies and re-forging alliances and deals.
    And when the boom returns, the old companies will get some of their business back, but new companies formed by ex-employees will get alot of business too. The newbies are looking for clients and need to be more confident and go-ahead to get that business and make deals happen.
    With better valuations,banks are happier to lend, land gets bought,developments get started, builders build, people apply for mortgages , things get sold and ...... we start to move on again.
    The ironic thing is that the Government has done all the right things to sow the seeds for recovery ....... the only economic commentator who sees recent public spending as the salvation rather than the problem this is the Observer's William Keegan in the Observer, the sad thing is that even Alistair Darling does not realise this either!
    The Tories seem to be in a time warp , comparing the current Labour government to Callaghan's and applying early eighties thinking as their idea of how to solve our current problem ,( but Thatcher's hatchet to public services and GDP and manufacturing was a disaster and took years and years to get over) rather than seeing our current situation as being more like the 92-97 when increased public spending led us out of recession and economic growth allowed us to pay for it.
    And it will be a return to growth which will sort out public finances,with a freeze on spending rather than a hatchet.

  • Comment number 16.


    To answer your post for once as oppose to going off on a rant about well pretty much everything that is government and economic architecture, I offer the following:

    From the perspective of my Northern England cacoon and being involved in the front end of development projects (industrial, residential, retail ..the lot UK and abroad) I would make the following observations generally.

    1) We are getting a lot more queries both here and overseas, which is interesting because we operate very much at the front end of construction. What we get as queries manifests itself as jobs on site 6 to 18 months down the line typically(such is red tape nowadays). The building industry seems to be 'waking up' and there is a lot of activity in the renewable energy sector which is very good news on a number of levels and long overdue. This current happy state of affairs for people like me will only keep a small number of specialists (like me) busy for now but will manifest as a lot of real work in the timeline suggested above.

    2) In line with the above, assuming construction 'leads the way' as it often does in signifying broader recovery then no real benefit will be seen in the northern economies for 1 or 2 years for the effects to filter through....that is assuming this recession follows a normal path.

    3) Counter to the above aparent good news is that there is still a lot of nervousness about Govt cuts in the industry. Much of the above aparent good news is as a direct result of the massive stimulus (cocktail of economic drugs)you describe, stimulus most people agree can not be sustained even in the short term. There is a real concern that is affecting confidence that the tap will have to be turned off before it translates to a 'real' impact in the economy, by real I mean jobs and lots of them and the positive feedback loop that generates.

    4) The south is a much more mobile economy than the north, less reliant on traditional industry and Govt jobs, so it is not surprising we are seeing a North / south divide 'recovery'. Just look at the congestion figures, traffic conjestion is up in the is still about 18% down in the north from a year ago. In my region unemployment is approaching 10% with a way to run yet I fear....

    To take the highest level overview I guess it boils down to this:

    - Will UKplc go bust / have some crisis before the stimulus carries through and manifests itself as real jobs in a year or 2 time (in the north)?

    - To avoid UKplc going bust will the required cuts strangle the 'recovery' at birth before it feeds through?

    I suspect (in the north at least) the latter of those options is the most likely to some degree on the balance of evidence i see around me.

    The best thing any in-comming government could do on a practical level would be to cut the red tape and burocracy in govt v quickly hence speeding up the time lag of the stimulus and reducing spending on 'spinning govt wheels' at the same time. This will mean a lot of public sector job loses. At the same time they must be very careful to preserve the projects of real benefit startegically long term, particularly renewable / sustainable energy projects and upgrading infrastructure generally for the 21st century ( cross rail etc.)

    Unfortunately the easiest choice politically is to keep the govt jobs but cut capital spending in 'real projects', you can shelve a project and save £1 bilion at the stroke of a pen...or make 5,000 government workers redundant in a key marginal. we all know which of those politicians go for which is in part why we got into this mess in the first place and why the system needs to change.

    That is where leadership comes in..... I feel i am on the verge of returning to 'rant' mode so i will stop there.

    I hope you find this grass roots insight useful.

  • Comment number 17.

    We should have a good idea where the economy is going just before the election! Cameron's slash and burn rhetoric should save labour from a humiliating defeat unless they wish to top the Tory hell-raising.

  • Comment number 18.

    I think the plan, in so much as there was one, was to throw billions at the banks, allow them to pay their bankers huge bonuses and hope somehow that the bankers would bring economic recovery by them buying houses, flash cars, more houses, spend it in expensive resataurants & shops, lap-dancing clubs, yet more houses, etc.

    I think that was it. That was the plan.

    Although I would not be surprised to one day learn that there was no plan at all.

    It is truly staggering that 200 odd billion has resulted in virtually no growth at all.

  • Comment number 19.

    This looks as much an end to recession as my father's last comment that '(his) life was getting better by the second'. A great Leigh wit who would have relished the farcical elements of this particular bit of factual wobble.

  • Comment number 20.

    What we need is a new Magna Carta! (i.e. Magan Carta Mk II?)...instead of compelling the 'King of the day' to respect the rule of law...we need to tie down our leaders and the banking mafia to the rule of law.

    Anyone else listen to the top civil service lawyer's comments at the Iraq Inquiry today??? summmarise...she resigned the day before the Iraq War she advised Jack Straw that the war was illegal without the second UN ruling.....Jack Straw chose to ignore that advice. The civil service mandarins at the time said that was 'the first time that legal advice had been ignored on such an important issue'.

    When Chilcot asked the lawyer "did the fact that Straw was a trained lawyer, perhaps, have an influence on his decision"

    She simply replied "he's not trained in international law"...cue guffaws from the audience.

    It's about time that political party manifesto's were made legal documents to which the 'criminal' political elite should be made accountable law!!!

  • Comment number 21.

    Thanks Paul for what seems to be a one-man battle to remind the BBC that "economics" also happens in places far from Downing St and the Square Mile. I think the "patchiness" is a really important part of what's going on at the moment, and it needs to be understood before appropriate policies can be created to help the mess we're in.

    I think even you are being simplistic with the north/south thing. Possibly the happiest people I know right now are in the rag trade in the M62 corridor - the exchange rate movements have been sufficient to make textile exports hugely competitive and they're enjoying a real boom (if they are geared up to exports).

    I guess that the speed at which decisions are made in a particular industry is hugely significant at this stage of the cycle. If you assume that all capex decisions in the private sector were largely suspended in Q4 2008, then a decision to buy a few container loads of carpets or pullovers gets made much more quickly than implementing a new IT system, and the benefits will be seen sooner in the real world.

    So I'd guess that other export industries with short decision cycles will also be doing well. Similar but different is retailing in places like Canterbury and Newry, which "export" to daytrippers from the eurozone - again it's a "quick" decision to go on a shopping daytrip.

    Other industries seem to be slowly waking up - money got really tight a year ago, but a lot of companies seem to have worked out some kind of refinancing six months later, albeit often on penal terms. There's some interesting stuff going on in terms of how banks are handling things one-on-one with companies - well, I'm not sure how you'd make it interesting in a TV segment for a general audience, but again it's an area that's crucial to understanding what's going on and explaining some of the regional/sector variation. A Spanish bank has some very different attitudes compared to other banks for instance.

    Take what senior insolvency partners at the Big 4 say with a bit of a pinch of salt; self-interest makes them obsessed with bankrupting national retail chains. The plethora of sites spread over the country with lots of possible buyers means that they need a lot of people to handle administration, which few firms can field and half of them will be conflicted so the firm that does get the gig can charge silly money. Which in turn looks great on the CV of the senior partner involved. A single steel mill might be worth as much as an entire retail chain, but it's a much simpler deal, so the fees are much less. You might be better off talking to junior partners or those in provincial offices to get a better picture of the regional/sector granularity.

    Talking of financial services, those that aren't still in the throes of post-merger reorganisations seem to be spending a bit of money on capital projects, but it's more "quick-win", "fill-in" small stuff rather than the mega-projects, partly because they know that there's more regulation on its way. I don't know if you've done anything on the Retail Distribution Review but that's got the potential to be rather disruptive to those companies affected by it.

    The PFI/PPP-type companies seem fairly resigned to losing a lot of that work, but after a period of uncertainty as the new government works out what it's doing, they seem hopeful of getting vanilla outsourcing work from central government and councils - lower margins but lots of it. Expect to see more deals like the Essex/IBM one - they see a lot of scope for doing the same work (back-office in particular) with 2/3 the staff, and with pensions more like private-sector ones (ie not gold-plated final salary ones). Even if it doesn't quite work out like that, Brown's mess means that the same amount of work at 2/3 the cost will be very attractive to whoever is in government.

    Incidentally Paul, did you ever follow up the companies you followed for that Money Programme back in ??March??, the metal bashers in Redditch and so on? I think that was my favourite bit of reporting to come out of the crunch and I'd be interested to know how they are getting along one year later. It was unusual in showing normal people in small businesses trying to adapt to the crunch and as such chimed much more with with my experience than gazillions of hours of coverage of Fred Goodwin's sandwich bill or whatever. It's just a shame that ordinary people are so unfashionable in the reporting of economics these days.

  • Comment number 22.


    Just as Blair (more probably Campbell) seems to have scared Goldsmith (I see no reward, unlike Scarlett, so deduce it was fear) I reckon Straw was heeding 'His Master's Voice' also. I really don't sense that he has it in him to carry off arrogance. Wilmshurst's contempt was beautifully understated.

  • Comment number 23.

    Interesting how Darling's voice rose noticeably, he began talking faster and faster and then he began repeating Paxman's questions before fumbling for an answer.


    Watching Darling, Mandie and other apologists for the economy on the news today I got the distinct impression that they were panicking, worried and seemingly in fear of being lynched.

    Please, someone just ask one of them what has become of our 200 billion? We might want it back some day!

  • Comment number 24.



  • Comment number 25.

    ...oh dear!...the writing really is on the wall...

    One of the world’s most influential investors said that Britain was now a “must to avoid”. Bill Gross, the head of Pimco, the world’s biggest bond investor, said the British Government’s gilts were “resting on a bed of nitro-glycerine”.

  • Comment number 26.


    Dont worry, we are too big to fail. UK plc is global ponzi scheme central, if the markets set off the 'Bed of Nitro Glycerine' we take everyone else with us including them. They have to support us.

    Milk it Darling, keep those printing presses rolling, we are too big to fail........ arn't we?

  • Comment number 27.


    If we do fail, who do you think will get the biggest shock...Alistair Darling or SuBo's intruder???

  • Comment number 28.

    Jericoa(#16) - you should not-rant more often! :-) I'm not sure about infrastructure "leading" out of this particular recession. The big problem is the relative inability to borrow money for big capital projects (the public sector being a specific example, although the underlying reasons for their lack of cash are a bit different to the private sector). On the other hand a lot of corporates are still quite profitable and so can fund small projects out of cashflow. In some sectors there's quite a bit of that small stuff going on. It's not spectacular, which is perhaps one explanation for that truism that recessions after financial crises are much slower to resolve than other recessions. But ultimately it's the corporates that are going to "save" us, the consumer and government are too indebted to make a major contribution.

    On the other hand, if you do have cash and want to expand, you're almost certainly better off buying a competitor or other second-hand assets rather than buying new, because there's still a good number of distressed sellers out there, albeit many are not as distressed as they were. So that's another reason for not expecting too much work flooding your way. :-)

    tawse(#23) - I think the main problem is that Darling is actually OK, he's just been left an impossible legacy by the bungling incompetence of his predecessor and his continuing influence on the Treasury. Certainly where Darling has had freedom to do things, he seems to have tried to undo some of the labyrinthine "cleverness" of the Brown tax system in favour of simplicity, even while publicly supporting him (eg the mumbling about spending the boom deficit on schools etc). I suspect that things could have been a lot different if Blair had appointed Darling as Chancellor before it was too late.

    As for Mandy, he seems to be more right-wing than the Tories at the moment, but then as de facto Minister for the AAA rating I guess he has to be.


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