This double-dip looks like a trade problem

Britain is importing more and exporting less, and that's where the recession stems from.

A lot of people – myself included  – were surprised by the economic contraction announced today. There had been lots of positive noises from the various surveys and data releases since the New Year, and the expectation was for positive (if meagre) growth. Retail spending has increased strongly in the new year, employment has picked up slightly, and the various surveys of businesses all suggested that the economy was growing slightly.

But there was one big problem: trade. It was export growth that propped up the UK economy during 2011 – without exports, the economy would have shrunk by 0.8 per cent over the year. However, UK exports slipped back at the start of 2012, and this may have been enough to tip the economy into recession.

Exports are key to the UK’s economic recovery, because conditions in the domestic economy are so strained. Consumer spending, which underpinned economic growth during the goods years, is being suppressed by falling incomes and stifling household debts. Add in the cuts in public spending, and the banks’ failure to lend money to the real economy, and it’s clear that the domestic economy is unlikely to lead us into recovery. Business investment, another potential route out of the crisis, is being crippled by a lack of confidence and weak demand. The UK economy is caught in a demand trap, and the only easy way out of it is to look overseas.

This export-led approach is at the heart of the government’s economic strategy. The government’s fiscal plan has enabled the Bank of England to keep interest rates low, and pump more money in through quantitative easing. These low interest rates have not been enough to boost consumer spending or investment, but they do have one very helpful side effect – they keep the pound weak, which boosts exports. In principle, this is a decent strategy, but the latest figures suggest it may be unravelling.

The latest ONS trade stats show that the UK’s trade deficit worsened dramatically in January and February, after having improved through 2011. Rather than helping to prop up the economy, trade has started to act as a drag this year, as imports grow and exports shrink. As a result, some of the contraction in the economy came mostly from the production sector, which tends to export more. And perhaps this trade problem shouldn’t come as a surprise, because the pound has been steadily appreciating over recent months. This makes exports more expensive, and imports cheaper – and suggests that the government’s efforts to keep the pound weak are no longer working.

This trade problem may also help to explain how the economy could shrink if retail sales grew. As it turns out, an awful lot of what we buy in the shops is imported, whether its clothes from East Asia or cars from Germany. If the increase in retail spending has helped fuel a rise in imports (or if the imports, such as petrol, have become more expensive), this will not help the economy grow. That isn’t just bad in the short term – it suggests our economy is heading in the wrong direction altogether, and certainly not re-balancing. We will have to hope that this trade problem turns itself around, or it will be even harder to get out of the economic slump.

There is one more point to address: the biggest factor in the GDP contraction was construction. But this should surprise no-one – we already knew that domestic spending was going to be weak, that the government is cutting back investment, and that there are questions over how reliable construction figures are anyway. The problem is that, up until now, these domestic weaknesses have been compensated for by export growth. If that stops being the case, the economy could be in even more trouble, and there will be even more onus on the government to come up with another economic strategy.

Cranes help build the Bishopsgate Tower in London, but construction has fallen flat nationwide. Photograph: Getty Images

Andrew Sissons is a researcher at the Big Innovation Centre based at the Work Foundation.

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Is the Great Fire of London a blueprint for how governments deal with disasters?

Visible leadership, an established authority, and a common external enemy: an enduring defence mechanism 350 years on.

In 1968, the science journal The Lancet ran a report into human behaviour. When populations are confronted with disaster, it recommended, effective “communications, coordination, and control, and the establishment of a recognised authority” are of utmost importance (advice that should have been heeded immediately after the Brexit result in June this year).

The 350th anniversary of the Great Fire of London this week seems is a good time to think about how we deal with disasters: over 13,000 homes were destroyed, 87 churches ruined and thousands of Londoners displaced.

For me, one of the most striking parts of the story of the Great Fire is not the fire itself nor the dramatic rebuilding programme that followed, but the state of flux in between.

When the fire broke out, England was at war with both the Dutch Republic and France. As soon as news reached France, the Venetian ambassador Alvise Sagredo, declared that the fire would be “worse than the plague and any other disaster, capable of making [the English] change their government and their principles”.

In England, even the London Gazette warned that England’s foes would try “to persuade the world abroad of great parties and disaffection at home against his majesties government”. Faced with unparalleled destruction and unprecedented disarray, how did the king, his advisers and civic authorities regain control of London?

With the Guildhall severely damaged and the Royal Exchange destroyed, the first step was to find a new base for civic and mercantile power. On 6 September, Charles II instructed the Lord Mayor and the city aldermen to resume governance of the city. Gresham College and buildings around Bishopsgate were taken over and efforts were immediately taken to re-establish trade. Vendors were granted permission to set up sheds in temporary markets at Bishopsgate Street, Tower Hill, Smithfield and Leadenhall Street.

“Honest and able persons” were selected to monitor the ruined city to ensure fire did not break out afresh, appeals were made across the country for charitable donations and neighbouring counties were called upon to provide sustenance. From the navy stores, ship’s biscuit was offered to the needy and canvas was provided so that the tens of thousands of homeless people stranded in the fields surrounding London could fashion tents.

The measures were not perfect. Visiting Moorfields, the diarist John Evelyn described, “the poor inhabitants . . . some under tents, some under miserable huts and hovels, many without a rag”.

Those stranded found food to be in short supply and many succumbed to the illnesses bred by a reduced condition in life, including aged playwright James Shirley, who died in October 1666.

But it wasn’t long before people started to disperse – either leaving London altogether, finding accommodation elsewhere, or returning to the locations of their former homes and shops to erect makeshift shacks above the ruins.

In the background, the trial and execution of French watchmaker Robert Hubert, who falsely claimed to have started the fire, provided a focus for any anger and rage.

With communication ruptured following the destruction of the London Gazette printing house and the General Letter Office, rumours of plots, arson and invasions had spread almost as quickly as the fire itself. Indeed, terrible violence had broken out during the fire, with mobs targeting any “strangers” or foreign-born Londoners. One French servant, for example, reported how gangs of “English women did knock down strangers for not speaking good English. Some of them armed with spits, some with bread staffs, and the captain with a broad sword.”

When the London Gazette was released the week after the fire – after only skipping one edition of its biweekly run – it provided readers with a detailed description of the catastrophe, emphasising its accidental nature and promoting the role played by Charles II and his brother and heir, James, Duke of York, in preventing the fire spreading even further.

Against protocol, the newspaper also allowed important tradespeople to advertise their new offices: the goldsmith-bankers, for example, informed readers that they had found premises along Broad Street.

By mid-September, the etcher Wenceslaus Hollar had already begun his survey of the city and plans had been submitted to the king from John Evelyn and architects Christopher Wren and Robert Hooke, to name just a few, as to how to rebuild the capital.

Writing at the time, Sir Nathaniel Hobart, believed that the “rebuilding of the Citty will not be soe difficult as the satisfying all interests, there being many proprietors”. As such, one of the most important innovations following the disaster was the establishment of a judiciary, known as the Fire Court, to untangle the complex web of formal and informal agreements between tenants and landlords. From 1667 until 1672 the Fire Court settled hundreds and hundreds of cases.

There were certainly many bumps along the way – for a while, the City of London was plundered and inhabited by gangs. Plus, anger towards foreign-born Londoners continued; owing to his Dutch background, one Johan Vandermarsh had to fight tooth and nail to keep hold of his property on Lime Street, despite helping to save many of his neighbours’ homes.

All of this considered, there was nothing like the widespread disorder that Charles II had feared and his enemies expected. On the contrary, the visibility of the king and his brother and heir – and the convenient suspicion that the fire had been started by an external enemy – worked to bind the people to their king and settle unrest. Although hard to believe at the time, there was also the promise of “a more beautiful city”.

Rebecca Rideal is a historian, factual television producer and author of 1666: Plague, War and Hellfire.

She will be speaking at London’s Burning festival on Friday 2 September – a contemporary festival of art and ideas produced at Artichoke to commemorate the 350th anniversary of the Great Fire of London. Free to the public, it runs from 30 August-4 September.