Wednesday 27 April 2011

A faltering economy

GDP Growth
UK output increases by 0.5 per cent


Real GDP quarterly growth
Real GDP quarterly growth


Forget interest rate rises in the near future, that is the underlining message of the figures on Gross Domestic Product (GDP) just published. 

The Bank of England cannot yet raise the interest rate despite inflation running at twice the government's target at 4 per cent because the economy is still in a fragile state. So an interest rate rise is unlikely until November at the earliest.


Although the GDP increased by 0.5 per cent, growth was held back by construction suffering a sharp drop. Construction output decreased by 4.7 per cent in the first quarter, compared with a decrease of 2.3 per cent in the previous quarter. The state of the construction industry is an useful indicator of whether there is confidence in the economy. 


Looking at the figures output in the UK economy has not improved for three straight quarters. This plateau shows that the economy has barely grown since September and is certainly lagging behind other leading economies.


On a more optimistic note manufacturing increased by 1.1 per cent compared with a similar increase of 1.1 per cent in the previous quarter. This tends to confirm the CBI's industrial trends survey of 451 manufacturers published yesterday. Of the 451 manufacturers that responded to the survey, 36% said they had seen an increase in output in the last three months, while 15% said it had fallen, giving a rounded balance of +20%.


However, despite these positive results the Monthly data from the survey showed 21% of manufacturers said that total order books were above normal, while 31% said that they were below. The resulting rounded balance of -11% is down on March (+5%). Which is again a worry that the bounce that we would expect in a recovering economy is just not there.
Overall the figures are mixed but significantly they are well below the Office of Budget Responsibility(OBR) prediction that the economy would grow by 0.8 per cent in the quarter.


This lacklustre performance of the economy raises serious concern whether the Government's deficit busting austerity measures is the right cause for the economy.


Of all the parties fighting the Welsh general election Plaid Cymru's economic policy would be the most relevant to dealing with these fragile economic figures. 


Their much criticised proposal to raise money for their Build4Wales company to invest in hospitals, schools,  housing and transport would seem to be the correct medicine to stimulate the economy.


For surely a classical Keynesian response to such low/no growth is exactly what the economic doctor should be prescribing. None of the other Welsh parties have come up with such radical medicine.

3 comments:

  1. I'm amazed to find you advocating Keynesian economics given the spectacular failure of same we have just experienced.

    Few builders now seek to develop housing in Wales following the crippling additional costs imposed by sprinkler which were the product of a mind decoupled from economic reality. Instead many builders are directing their efforts to developing in England.

    Enterprise zones are much more likely to give Wales the stimulus it needs.

    Encouraging the set up / relocation of suppliers to hi-tec companies like Airbus is much more likely to give the economy impetus but then parties that hold socialism as their central dogma simply do not understand how to attract the private sector.

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  2. Enterprise Zones, unless tightly controlled actually suck retailing from near by localities, they contribute zero or near to zero new jobs and create wastelands of existing shopping centres. They were a disaster last time round in England.

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  3. "Instead many builders are directing their efforts to developing in England."

    Not true- in the last quarter construction did relatively better in Wales than in England.

    "Encouraging the set up / relocation of suppliers to hi-tec companies like Airbus is much more likely to give the economy impetus but then parties that hold socialism as their central dogma simply do not understand how to attract the private sector."

    Is this the same Airbus that was given a £20m package of Keynesian-style state support last year? Without socialist "dogma" Wales wouldn't have any hi-tech companies left. Look at the support Airbus' competitors in France get. I think the conservative French government understands not only attracting the private sector but creating their own indigenous private sector, yet they are even more protectionist than Wales or the UK.

    If you implemented a free market economic policy in Wales rather than an obviously Keynesian one, Airbus would leave. Because there is no chance that France will ever withdraw their subsidies from their own aerospace industry.

    Time to get some facts rather than moaning about "socialism" and evangelising about markets, which only exist in the Western world today because the much-maligned state came riding to the rescue.

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