The UK economy grew by 0.5% in the third quarter of 2011 according to preliminary real GDP figures released by the Office for National Statistics today.
Over the last year output was up 0.5% – a significant slowdown from the 2.6% growth recorded in the previous four quarters; 0.5% is the lowest annual growth rate recorded in the UK since the final quarter of 2009. In the last four quarters growth has been -0.5%, +0.4%, +0.1% and +0.5%.
But the quarterly pattern has been distorted by last December’s bad weather, the extra bank holiday in April and the effect of the Japanese tsunami on global supply lines. Our best guess is that the underlying growth picture over the last four quarters is 0.0%, -0.1%, +0.5%, +0.1%.
On economists’ now widely accepted definition that a recession is two consecutive quarters of negative growth, therefore, the UK has so far avoided a return to recession.
But it has been a very close run thing and growth has fallen well short of what the government hoped for when it argued a year ago that cuts in activity in the public sector would be more than offset by a surge in activity in the private sector.
One consequence of today’s data is the Office for Budget Responsibility (OBR) will have to make substantial cuts to its growth forecast for 2011 when it publishes new projections alongside the Autumn Statement on November 29th. The OBR has already cut its forecast from 2.3% at the time of last June’s budget, to 1.7% in March.
Its new forecast is likely to be about 1.0%.
The OBR will also be revising down its forecast for 2012 (currently 2.5%) because the outlook for the next few months remains grim. Household and business confidence – the best short-term indicators of economic activity – remain at very depressed levels. Just today the latest survey of purchasing managers showed the manufacturing sector contracted in October at its fastest pace since June 2009, when the UK was still in recession.
Meanwhile, the continuing crisis in the eurozone, which the OECD now expects to grow by just 0.3% in 2012, will be a drag on UK exports.
In the last few weeks, the prime minister and chancellor have been keen to blame all the UK’s economic woes on the developments in the eurozone.
The unfortunate reality is that we are only just beginning to see its effect here. The near stagnation of economic activity in the UK began in the fourth quarter of last year – well before the eurozone crisis reaching boiling point.
The slowdown in the UK is the result of a mix of domestic factors, particularly the chancellor’s tough fiscal stance (which has knocked confidence in the private sector about future levels of demand), and global factors such as higher oil and food prices.
In terms of employment, a recession now looks inevitable. The International Labour Organization warned yesterday the world economy was on the verge of a new and deeper jobs recession. In the latest three months (to August), employment in the UK was 178,000 lower than in the previous three months.
With the outlook for output growth deteriorating, it is hard to see how the UK can avoid falls in employment in the third and fourth quarters of this year – a jobs recession.
• Fast spending cuts push UK economy from fastest growth for a decade towards zero – Cormac Hollingsworth, November 1st 2011
• Unprecedented growth of 1.3 per cent needed for OBR to meet its projection – Will Straw, October 31st 2011
• Cameron’s “failed experiment” leads to yet another economic downgrade – Alex Hern, October 17th 2011
• MPs give voice to the “real human tragedies” behind today’s unemployment stats – Shamik Das, October 12th 2011
• Forget Grayling’s excuses: Record joblessness is solely the fault of this government – Richard Exell, October 12th 2011