The government could have done with a “shot in the arm” in the run-up to the Pre-Budget Report, said Jeremy Warner on Telegraph.co.uk. Instead, it received “a slap in the face with a wet fish”.
The first estimate of Britain’s third-quarter GDP confounded widespread expectations of a return to growth. Output fell by 0.4% between July and September, marking the sixth successive negative quarter and the longest contraction since official quarterly records began in 1955. The overall slide in output from the peak is now 5.9%, almost as bad as in 1979-1983.
There was slightly better news early this week, however, as the CBI survey of retail sales volumes in the first half of October was the most upbeat in almost two years.
What the commentators said
So much for Gordon Brown’s insistence that Britain was “better placed” than its rivals to ride out the economic storm. As Larry Elliot pointed out in The Guardian, Germany, France and Japan have already returned to growth – we will almost certainly be the last G7 country to emerge from recession.
Germany and Japan were hammered when world trade plummeted because they specialise in industrial exports, said Economist.com. Germany’s peak-to-trough GDP decline was 6.7%. But as the inventory cycle has turned and global trade rebounded, they are bouncing back. The ongoing slump here “reflects the vulnerability of an economy especially laden with debt and with a particularly troubled banking sector”.
The improvement in retail sales is fuelling hopes that consumption, which comprises 65% of the economy, is due to rebound. But “there’s every reason to fear” that pre-Christmas trading will be a “flash in the pan”, said David Prosser in The Independent.
The temporary VAT cut is due to expire at the end of December and promotions will encourage people to bring purchases forward. The GDP data made it clear that, off the high street, spending remains “extremely weak”, said Capital Economics. What’s more, higher unemployment, weak income growth, forthcoming tax rises, tight credit and the huge pile of debt that consumers have barely started to pay back all point to a fall in consumption next year and a “sluggish” subsequent recovery.
Meanwhile, neither the government nor the Tories seem to have a clue how to get us out of this mess, said Simon Heffer in The Daily Telegraph. Neither looks set to cut spending as much as we need to, while both plan to put up taxes. This is “insane” – if we are to lay the foundations for growth, we must boost demand. So what we should be doing is reducing the burden on the private sector to ensure long-term recovery. For now, said the FT, all we have to look forward to is a “long and painful convalescence”.