The wider point about Britain’s “triple-dip” recession threat

January 25, 2013

Britain’s economy shrank an estimated 0.3 percent at the end of 2012 and every major media outlet says it points to a big risk of a triple-dip recession.

And equally predictably, some economists have already pointed out it’s a preliminary report, so maybe the economy isn’t as weak as the stats show. Negative figures have been revised away in the past.

While both points may well be true, they really amount to a squabble over whether your football team is going to go 4-0 down or 5-0 down. As Markit Economics pointed out, Friday’s figures mean that UK GDP remains some 3.2 percent lower than the peak of Q1 2008.

While a potential triple-dip recession would have profound political implications, in economic terms it doesn’t really make a huge amount of difference. 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. Even if Friday’s GDP figures are eventually revised to the top of that range, it still do little to change Britain’s moribund economic story.

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