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 championship – Ann 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 out – William Bain MP, November 14th 2011
• UK set for among slowest growth in EU – Will 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”
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
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
Newsbot9
Hint: Read economics 101 before you post incoherently here.
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.
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.