MacroScope

Ignore the noise around Britain’s GDP figures

January 24, 2013

One of two stories will probably emerge from Friday’s first reading on how the British economy fared at the end of last year.

If it shrank 0.1 percent in the fourth quarter as the consensus of economists polled by Reuters expects, or worse, we will hear it raises the disastrous spectre of a third recession in four years, or a “triple-dip”.

If it defies expectations by growing slightly, that risk is averted and the government will say it shows the economy is getting back on its feet.

While both stories have profound political implications, in economic terms they are really aspects of the same thing: Britain’s economy has been drifting around the margins of mediocrity for the last few years, and will probably do so for years to come.

Stephen Lewis, chief economist at Monument Securities, offered this wider view of Britain’s economy in Wednesday’s Reuters poll:

“These terms double-dip, triple dip, they’re really political rather than economic. Really what we’re in is a depression. That word has unfortunate connotations from earlier stages in our history, I guess.

Politicians will never acknowledge the fact we are in a depression, which is a situation where pulling the policy levers doesn’t result in an improvement in the situation.

I think we’ve seen that at the Bank of England, with its ultra-accommodative monetary policy, which appears to have made very little difference. Certainly not the kind of very dramatic improvements the architects of that policy would have hoped for. Similar, we’re continually frustrated on fiscal policy because the government is unable to reach the targets it has set.

So as long as we stay in this situation, and we shall unless there’s some external force which pulls us out of depression, then I think we’re going to continue to bump along the bottom.”

In any case, the 56 economists polled by Reuters last week had forecasts for Q4 ranging from a 0.6 percent quarter-on-quarter contraction, to a 0.2 percent rise. Anything in that range would only perpetuate Britain’s moribund economic story.

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