We’ve got the wrong sort of growth – a fall in real GDP now looks more likely

The outlook for the final quarter of the year is gloomy; a fall in real GDP now looks the most likely outcome, writes IPPR chief economist Tony Dolphin.

If anyone was inclined to get excited about the news real GDP in the UK increased 0.5 per cent in the third quarter of this year – and few were – today’s release from the ONS (pdf) detailing the composition of that growth will make them think again.


In the third quarter, consumer spending was unchanged from the previous quarter, business investment was down 0.2 per cent and exports were 1.0 per cent lower. No sign here of the rebalancing of the economy the government is hoping for, though the fall in exports does provide some cover for the government to blame disappointing growth in the UK on the eurozone crisis.

Instead, growth was driven by a 0.9 per cent increase in government spending, which is now up 2.9 per cent over the last year, and by a 0.7 per cent contribution from inventory building, which went from £452 million in the second quarter to £2,907 million in the third.

If this inventory building was voluntary, then there is nothing to worry about. More likely, though, given the recent weakness in final demand in the UK economy – and in our main export markets – it was involuntary. Producers and retailers were probably expecting higher sales, and when these failed to materialise they were left with unwanted stock.

If this interpretation is right, then the outlook for the final quarter of the year is gloomy.

Business and consumer confidence indicators and anecdotal evidence from the High Street (with Arcadia announcing today it is planning to close 260 stores) suggests final demand will remain weak. And producers and retailers are likely to cut back production in an effort to reduce inventory levels.

A fall in real GDP now looks the most likely outcome.

See also:

When does economic growth benefit people on low to middle incomes – and why?James Plunkett, November 21st 2011

UK not performing too well in the GDP growth championshipAnn Pettifor, November 17th 2011

New LSE report says Labour’s economic record was “strong” and “not due to bubbles”Will Straw, November 15th 2011

Osborne has put Britain in an economic death spiral: Here’s how to break outWilliam Bain MP, November 14th 2011

UK set for among slowest growth in EUWill Straw, November 11th 2011

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17 Responses to “We’ve got the wrong sort of growth – a fall in real GDP now looks more likely”

  1. P McCarvill

    We’ve got the wrong sort of growth – a fall in real GDP now looks more l: http://t.co/CyKNPksH writes @IPPR’s Tony Dolphin

  2. False Economy

    RT @leftfootfwd We’ve got the wrong sort of growth – a fall in real GDP now looks more l: http://t.co/NOimgK56 writes @IPPR’s Tony Dolphin

  3. David Nash

    We’ve got the wrong sort of growth – a fall in real GDP now looks more l: http://t.co/CyKNPksH writes @IPPR’s Tony Dolphin

  4. Fiona McMahon

    RT @leftfootfwd We’ve got the wrong sort of growth – a fall in real GDP now looks more l: http://t.co/NOimgK56 writes @IPPR’s Tony Dolphin

  5. Alex Braithwaite

    RT @leftfootfwd: We’ve got the wrong sort of growth – a fall in real GDP now looks more likely http://t.co/WMHoIC3h

  6. Political Planet

    We’ve got the wrong sort of growth – a fall in real GDP now looks more likely: The outlook for the final quarter… http://t.co/SanQ8zG0

  7. Dr Eoin Clarke

    Check out @leftfootfwd today. Very interesting piece on prospects for negative growth in Q4 – http://t.co/Q9EcfMdh

  8. Anonymous

    Yep. It’s growth in government spending. It’s growth in government borrowing (gilts). It’s growth in printing money. It’s inflation. It’s growth in off the books government debt.

    Hint, printing and spending is the cause.

  9. Cormac Hollingsworth

    @ippr Tony Dolphin finds that private sector weakening: http://t.co/BVvdRNcc on @leftfootfwd

  10. Policy Studies Inst

    GDP is flat or down everywhere except… government spending? Who'd have thunk that? http://t.co/tHMQleka

  11. Michael

    We’ve got the wrong sort of growth – a fall in real GDP now looks more likely l Left Foot Forward – http://t.co/smUK2ReC

  12. Mulatto Passer

    We’ve got the wrong sort of growth – a fall in real GDP now looks more likely l Left Foot Forward – http://t.co/smUK2ReC

  13. Newsbot9

    Hint: Read economics 101 before you post incoherently here.

  14. Anonymous

    So not any evidence in your post.

    Gilts = 1,050 bn
    State pension? Not on the books – its spending – so it doesn’t have to be paid.
    State second pension – ditto
    Civil service pensions – ditto
    Guarantees – diito

    Notice how much is off the books. Now why would that be? It’s because there is no intention of paying the promises.

    A challenge for you. What’s the present value of the state pension? Then you can compare it against gilts, against tax revenues, and work out of its affordable. Likewise for all the other debts.

    Unless the left and right get realistic about the level of debts, it will go all Greek, and then who gets hurt?

    My guess is that you won’t post numbers.

  15. Newsbot9

    Certainly, after your certificate proving you’ve passed economics 101 is linked.

    Reducing GDP means that the debt will naturally grow. Why are you supporting growing the debt?

    The government’s own report makes it clear it’s affordable. Moreover, more is spent on pension-related tax breaks for the rich, their rebate, which you will of course defend. Making pensions BARELY worth it THIS time, then slashing next time, and next time and…

    Pensions are a scam because the 1%ers like you have been allowed to destroy them.

  16. Anonymous

    Quite the opposite. I’m not supporting growing debts. However, given that the deficit is large debt is growing. Growth is less than the cost of the debts, so again, its not a good idea.

    On the question of government figures.

    Tell me what the hard money value is for the civil service pension, state pension, state second pension. That’s the measure of affordability.

    As for pensions, I’ve stopped using them. No more contributions. No way will I set up a fund such that people like you desperate for money for your own selfish reasons say, look, you’ve saved money, that means you rich, we’re having that.

    So who has destroyed pensions?

    It’s quite easy to see the villains.

    1. Government. This is the villain in chief. First they have gone for the taxation route to get money. Brown’s little tax raid has taken well over 100 bn out of pensioners funds.

    2. Government. If a median wage earner (26K) would have had 21K a year, RPI linked joint life at 65 if their money had gone into the FTSE (risky…) but instead only gets 5K from the government, the government has deprived them of over 75% of their retirement income. Nothing to do with anyone else. The reason is giving money to other people, their cut, and no compound growth.

    3. Rent seeking. High charges are the prime example. Here the government has allowed people to rip off pensioners. If the government regulated and said no more than X% in charges, it deals with that scam. It takes two to rip people off. If you can move your fund with no charges, then the consumer can deal with any attempt to rip them off.

    4. Civil service pensions. Unfunded. The government made a promise, and now it can’t fulfill it. So its going to rip off someone. The argument is who gets ripped off to what extent. My two year old son, or the civil servant? Which one is it?

    So since I’m not a politician, its not me who is at fault. Look to Westminster for the thieves.

  17. UK growth - bottom of the table, wallowing with the PIGS | Left Foot Forward

    […] also: • We’ve got the wrong sort of growth – a fall in real GDP looks inevitable – Tony Dolphin, November 24th […]

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