The UK could already be back in recession, say forecasters

The Item Club and the CEBR say Britain is in a double-dip recession. Where is the government's plan

Barely a week goes past without more bleak economic news. And now, according to two top forecasters, it appears that the UK could already be back in recession.

Ernst and Young's Item Club and the Centre for Economics and Business Research (CEBR) both believe that GDP shrank in the final quarter of 2011 and will fall again in the current three month period. A recession is defined as two consecutive quarters of contracting output.

This may come as no surprise (the OECD predicted similar results in November last year), but the Item Club's predictions are particularly worrying for the coalition. It is the only non-governmental forecasting group to use the same economic model for its forecasts as the Treasury and the Office for Budget Responsibility (OBR).

The Item Club's report predicts that the economy will grow just 0.2 per cent this year, and will not return to normal levels of growth until 2014, because the eurozone crisis will hold back investment in the UK. Even if a solution is found, it predicts that Britain's economy will still only grow by 1.75 per cent in 2012 and 3.8 per cent in 2014. Nor is it optimistic about job prospects, stating that unemployment will rise by a further 300,000 to just below three million people as the private sector fails to compensate for public sector job losses.

The CEBR reiterates these findings. It revised down its forecast for growth for 2012 from 0.7 per cent growth to a decline of 0.4 per cent, with a risk of decline of 1.1 per cent if the situation in the eurozone worsens.

For the time being, then, there is little light at the end of the tunnel. Amid these depressing forecasts about growth and unemployment, IPPR North has humanised the statistics by analysing ONS figures to show that in some areas of the UK, there are 20 jobseekers for each vacancy. In the worst affected area, West Dunbartonshire, there are 20 for each vacancy, while in London, Lewisham has 16 jobseekers for every job. It found that the national average was four jobseekers for every vacancy.

If these predictions are borne out -- and past example suggests that the most pessimistic forecasts tend to be the correct ones -- then it will be the double dip recession that the New Statesman has been warning of since March 2009. In October 2009, our Economics Editor David Blanchflower wrote:

Lesson number one in a deep recession is you don't cut public spending until you are into the boom phase. John Maynard Keynes taught us that. The euro area appears to be heading back into recession and the austerity measures being introduced in certain eurozone countries, especially those in Germany, will inevitably lower UK growth, too. It is extremely unlikely, therefore, that net trade will leap to our rescue. taught us that. The consequence of cutting too soon is that you drive the economy into a depression, with the attendant threats of rapidly rising unemployment, social disorder, rising poverty, falling living standards and even soup kitchens.

The government's sole economic priority thus far has been balancing the books. Will they come up with a plan for growth, faced with more and more bleak predictions? Somehow, it doesn't seem likely.


Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

Getty Images.
Show Hide image

Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.