For all the attention they drew, the UK GDP figures released this week were meaningless. As John Hawksworth of PricewaterhouseCoopers put it: “Given the normal margin of error for preliminary GDP estimates, the difference between 0.1% and zero growth is statistically insignificant”. Yet they’re being bandied around as final proof that Britain, after a 6% plunge in output, is now out of recession.
But even if it is, it might not be for long. London may be buzzing with bonuses but there’s little good going on elsewhere. We know, for example, that there’s a strong chance property prices will fall again later this year – it’s just a matter of waiting for a few more sellers to blink and a few more lenders to raise their rates.
We know unemployment is a huge problem. The statistics may say things are looking up, but every month the number of actual employed people falls. I had dinner this week with an entire table of unemployed people. None are in the statistics for the simple reason that they once had good jobs, and they have savings. If you aren’t eligible for benefits you won’t sign on, but you’ll still be unemployed and you’ll still be cutting your spending to fit your circumstances.
We also know that, for those still in work, real wages are falling and likely to continue to do so. And we know the British consumer is deleveraging at speed. As Ian Campbell points out on Breakingviews, homeowners pulled £12bn a quarter in equity from their houses in 2006, and spent the lot. But from January to September 2009 they repaid £6.3bn of debt. And economies that rely on consumer spending for growth rarely grow when consumers are too busy repaying debts to think about buying new fripperies.
We know too that we are likely to see a tightening of fiscal and monetary policy next year if not this year. Our current fiscal position is unsustainable. However much politicians might like to say they don’t want to derail recovery by cutting spending too soon, the choice isn’t really theirs. Sorting out the deficit can’t wait much longer. Right now, stimulus is pretty much the only thing keeping us going. Without the scrappage scheme and consequent rise in car registrations (even my family bought a new car this year!), along with rises in government spending, there’s no way we would have seen even as anaemic a positive number as 0.1% for last quarter.
It’s also worth remembering that the Monetary Policy Committee doesn’t have as much choice on interest rates as everyone likes to think. The Bank of England’s brief is to keep inflation around 2%. That meant they tightened too late during the bubble but, if the Consumer Price Index keeps rising, it might also mean they tighten too soon in the bust. Add it all up and a year from now, the idea that Britain might really achieve GDP growth of 0.1% may seem a distant dream.