Lost year, or lost decade?

Growth will flatline over the next year, but already things are back where they were in 2002.

I wrote yesterday that it doesn't really matter that the UK is in a technical recession. The zero boundary is unimportant in many aspects of economics, and growth is one – the difference between -0.1 per cent and 0.1 per cent is the same as the difference between 0.1 per cent and 0.3 per cent.

But when economics feeds into politics and the media, the difference does matter. Headlines of "UK not in recession" are far more likely in the event of 0.1 per cent growth than headlines of "UK remains in crippling stagnation"; similarly, the news yesterday was always going to be about the two consectutive quarters of negative growth, not the seven consecutive quarters in which the UK economy has barely changed. Headlines affect how people think, how people think affects how they act, and how they act feeds back into the economy.

All of which is to say that if it didn't matter that we were in a technical recession when the stats were released at 9:30am yesterday, it probably did by the time the front pages were fixed at 9:30pm.

Gerard Lyons, Standard Chartered's chief economist, said:

The likelihood is that the data will further dent confidence and push the recovery back.

The second quarter of 2012 was always going to be a weak one. The OBR, which overestimated Q4 2011 growth by 0.1 per cent and Q1 2012 by 0.5 per cent, predicts a flatlining Q2 2012, with 0.0 per cent growth. If their past pattern continues, we should expect a third quarter of contraction - especially as consumer confidence, hit by the news of recession, will depress that quarter still furter.

Little wonder that Philip Aldrick, the Telegraph's economics editor, is calling this a "lost year", fearing that the overall contraction in 2012 could be 0.1 per cent. But even there, talk of a lost year glosses over the longer term weaknesses. Nominally positive growth below the rate of population growth results in GDP per capita contracting. Even if we find out, after the final GDP figures come out in two months, that we weren't in a national recession, we've been in a per capita recession for a while. And under OBR and ONS predictions for the rate of GDP and population growth, it won't be until 2016 that GDP per capita is back to where it was in 2007. That isn't a lost year; it's a lost decade.

And even talk of a lost decade is understating the problem. Pay rises have been near at or below inflation for so long that the average weekly wage now is worth the same as it was in September of 2002 – and because price inflation remains higher than wage inflation, this is getting worse, not better. In terms of what you can buy for your wage, we've already lost a decade. The trick will be to not lose two.

Buckingham Palace during the Golden Jubiliee, the last time real wages were this low.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.