Figures for economic output, published yesterday by National Statistics, show the UK contracting at a far faster rate than anticipated. Between April and June, the government statisticians think the whole economy shrunk by 0.7%. Compared to this time last year, it is 0.8% smaller than it was.
This double-dip recession is the worst for fifty years. The economy is recovering more slowly after the 2008 crash than it did from the Great Depression of the 1930s.
George Osborne is already attempting to pin the blame on the eurozone. There’s no doubt that continuing turmoil in the UK’s biggest trading partner will have an impact, and the eurozone economy as a whole is contracting. That’s before the possible effects of a Greek (or other) exit from the currency block, and the financial bedlam it would bring – not least into the UK’s bloated, over-exposed financial sector, of which more later.
But his blame-the-foreigners story doesn’t work. Exports in general have grown in the last two years, helped along by an approximately 30% decline in the value of the pound. Exports to the eurozone in particular have, it’s true, declined in the last few months, but they remain higher than they were in 2010.
In the first instance, the causes of the depression – since that is what we are in – are domestic. Consumer spending has fallen by more than in any previous post-war recession. Investment spending – never high – has fallen by some £40bn since 2008. If households and firms aren’t spending, it means others aren’t earning. The economy starts to slide.
Both of these factors can be traced back to underlying weaknesses in the economy, which in the UK’s case have taken the form of a peculiar dependence on credit and debt: first to drive the apparent “boom”, and second to drive the bust. But public spending is directly under the Coalition’s command. George Osborne’s austerity programme is driving the economy backwards, just as surely as it is across Europe. If they still write economics textbooks in the future – if the whole profession hasn’t fallen into such disgrace that they still bother printing the things – he deserves his own special entry, as a warning to others.
If you’re in a recession, the worst possible policy to follow is the one Osborne and the Coalition have now clung to for two years, in defiance of history, economics, and even, in the end, simple common sense. Austerity is counterproductive.
Reversing course would immediately help. But the UK’s problems lie deeper. Dig into the figures, and beneath headline number you find that only two parts of the private sector were growing over the last quarter: utilities, fuelled by rising prices, and “business and financial services”. In other words, as the recession worsens – aided by austerity – the chronic weaknesses of the economy are worsening with it. We are becoming more, not less, dependent on finance and spending more, not less, on energy. Osborne’s “march of the makers” is a joke in poor taste, with manufacturing output declining 1.4% over the quarter.
Breaking the decline starts with ending austerity. But it has also to include a fundamental effort to improve energy efficiency, and the provision of sustainable, decent work. That would mean a plan to transform the economy – shrinking finance, investing in green infrastructure, creating jobs.
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