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Recession deniers, it’s time to face up to the grim reality of UK plc

The UK is in a double-dip recession. A few of us predicted it – an inevitable consequence of the coalition government’s suicidal economic policies – and I, for one, never failed to warn ministers, but to zero effect. Over the past six quarters, four of which have been negative, the UK economy has declined by 0.2 per cent; those four include the past two, which fulfils the technical criteria for a double dip.

George Osborne’s policies have produced growth in the UK lower than in Spain, which grew 0.2 per cent between Q4 2010 and Q1 2012. Osborne tried to stop us becoming like Greece, but instead he made us more like Spain. Under Alistair Darling, Osborne’s Labour predecessor as chancellor, the UK economy grew 3.2 per cent between Q3 2009 and Q3 2010, whereas Spain had zero growth. Moreover, this recession is of approximately the same depth as the Great Depression, which stretched over 12 quarters. Today, output is 4.3 per cent below the level at the beginning of the recession in 2008.

Dead horse

Keeping Osborne company are the recession deniers, that large crowd of assorted commentators who failed to call the double dip. Naturally, it’s easier to be with the pack and wrong than outside it and right. One weekend columnist insisted that the UK was not really in recession, basing his claims on evidence presented by Goldman Sachs, which forecast in December 2009 that UK GDP would grow by 3.4 per cent in 2011, against an outcome of 0.8 per cent. Even Goldman’s own Kevin Daly said that the numbers were “unbelievable”.

Another commentator, David Smith of the Sunday Times, couldn’t resist flogging a dead horse when he wrote in his 29 April column: “What can I say about Britain being ‘officially back in recession’? Apart from the fact that no quantity of salt is big enough to be applied to these preliminary estimates, I am not going to spend too much time on them.” And then he did. Meanwhile, Andrew Sentance continues to insist that the data will be revised upwards because that is what happened in 1992 and 1993, though it is unclear why that is relevant now.

It is true that there has been some positive economic news from business surveys such as various purchasing market indices and from the British Chambers of Commerce. Yet that has to be tempered by other findings, including the most recent Markit manufacturing PMI survey as well as the CBI Distributive Trades Survey and the Bank of England’s agents, none of which suggested a strengthening of the economy any time soon. Then there is the evidence of consumer confidence – or, rather, the lack of it. Despite the recent jump in the Nationwide Consumer Confidence Index, it is still in recession territory at 53, the same level it was at in November 2008.

The chart below is based on the European Union’s monthly survey. It plots an overall consumer confidence index, as well as specific attitudes to the financial situation and major purchases over the coming year. All three are at levels consistent with recession. Consumers will not spend if they are worried about the state of their finances, especially with continuing negative real wage growth.

Next, the revisions. Some people claim the preliminary estimates are untrustworthy because they are based on a sample. Yet the Office for National Statistics is pretty good at this stuff – the average alterations are very small. Over the past 20 years the average quarterly GDP revision has been just +0.1 per cent, mostly due to one-off factors. According to the ONS, the main reason for revisions is a change to the way that National Accounts tracks inflation, using the Consumer (rather than Retail) Prices Index measure of inflation. This did have an upward impact on GDP growth on average but it would be wrong, without knowing details of any proposed methodological changes and their impact, to assume that such revisions will be repeated.

Moreover, since 2008 the average revision has been a downward adjustment of 0.2 per cent. Take 2008 as a case in point: Q1 was revised down from 0.4 per cent to 0 per cent; Q2 from 0.2 per cent to -1.3 per cent; Q3 from -0.5 per cent to -2 per cent; and Q4 from -1.5 per cent to -2.3 per cent. In short, aggregate initial estimates of -1.4 per cent were revised down to -5.6 per cent. If this pattern was repeated over the most recent quarters – something that is far from implausible – we would find ourselves much deeper in recession.

The revisions matter because they altered the date the first recession began from Q3 2008 to Q2 2008, deepened it and moved back the date it ended, from Q2 2009 to Q3 2009. Maybe, if the Monetary Policy Committee had known this, it would have cut interest rates sooner. It is still possible the start date may move even earlier.

Imaginary lines

Forecasters have big problems with turning points. The latest estimates suggest there was positive GDP growth for 62 successive quarters from Q2 1992 onwards. Those predicting what was coming tended to extrapolate in a linear fashion, expecting to see more positives, and hence failed to spot the 2008 downturn.

How do Smith and the other recession deniers know that we are not at a downward turning point now? They don’t. I haven’t a clue where growth is supposed to come from under policies that have so clearly failed. I wouldn’t be surprised if the next two quarters, at least, were worse than the recent two negative quarters.

In other words, it’s time to contemplate the possibility of several more quarters of negative growth. And what will be the new spur to investment, consumption and net trade? Answers in an email, George.

David Blanchflower is professor of economics at Dartmouth College, New Hampshire

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 07 May 2012 issue of the New Statesman, The Science Issue

Photo: Getty Images
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No, IDS, welfare isn't a path to wealth. Quite the opposite, in fact

Far from being a lifestyle choice, welfare is all too often a struggle for survival.

Iain Duncan Smith really is the gift that keeps on giving. You get one bile-filled giftbag of small-minded, hypocritical nastiness and, just when you think it has no more pain to inflict, off comes another ghastly layer of wrapping paper and out oozes some more. He is a game of Pass the Parcel for people who hate humanity.

For reasons beyond current understanding, the Conservative party not only let him have his own department but set him loose on a stage at their conference, despite the fact that there was both a microphone and an audience and that people might hear and report on what he was going to say. It’s almost like they don’t care that the man in charge of the benefits system displays a fundamental - and, dare I say, deliberate - misunderstanding of what that system is for.

IDS took to the stage to tell the disabled people of Britain - or as he likes to think of us, the not “normal” people of Britain -  “We won’t lift you out of poverty by simply transferring taxpayers’ money to you. With our help, you’ll work your way out of poverty.” It really is fascinating that he was allowed to make such an important speech on Opposite Day.

Iain Duncan Smith is a man possessed by the concept of work. That’s why he put in so many hours and Universal Credit was such a roaring success. Work, when available and suitable and accessible, is a wonderful thing, but for those unable to access it, the welfare system is a crucial safety net that keeps them from becoming totally impoverished.

Benefits absolutely should be the route out of poverty. They are the essential buffer between people and penury. Iain Duncan Smith speaks as though there is a weekly rollover on them, building and building until claimants can skip into the kind of mansion he lives in. They are not that. They are a small stipend to keep body and soul together.

Benefits shouldn’t be a route to wealth and DWP cuts have ensured that, but the notion that we should leave people in poverty astounds me. The people who rely on benefits don’t see it as a quick buck, an easy income. We cannot be the kind of society who is content to leave people destitute because they are unable to work, through long-term illness or short-term job-seeking. Without benefits, people are literally starving. People don’t go to food banks because Waitrose are out of asparagus. They go because the government has snipped away at their benefits until they have become too poor to feed themselves.

The utter hypocrisy of telling disabled people to work themselves out of poverty while cutting Access to Work is so audacious as to be almost impressive. IDS suggests that suitable jobs for disabled workers are constantly popping out of the ground like daisies, despite the fact that his own government closed 36 Remploy factories. If he wants people to work their way out of poverty, he has make it very easy to find that work.

His speech was riddled with odious little snippets digging at those who rely on his department. No one is “simply transferring taxpayers’ money” to claimants, as though every Friday he sits down with his card reader to do some online banking, sneaking into people’s accounts and spiriting their cash away to the scrounging masses. Anyone who has come within ten feet of claiming benefits knows it is far from a simple process.

He is incredulous that if a doctor says you are too sick to work, you get signed off work, as though doctors are untrained apes that somehow gained access to a pen. This is only the latest absurd episode in DWP’s ongoing deep mistrust of the medical profession, whose knowledge of their own patients is often ignored in favour of a brief assessment by an outside agency. IDS implies it is yes-no question that GPs ask; you’re either well enough to work or signed off indefinitely to leech from the state. This is simply not true. GPs can recommend their patients for differing approaches for remaining in work, be it a phased return or adapted circumstances and they do tend to have the advantage over the DWP’s agency of having actually met their patient before.

I have read enough stories of the callous ineptitude of sanctions and cuts starving the people we are meant to be protecting. A robust welfare system is the sign of a society that cares for those in need. We need to provide accessible, suitable jobs for those who can work and accessible, suitable benefits for those who can’t. That truly would be a gift that keeps giving.