“The recovery is also much, much weaker than the OBR originally expected. The original estimate for 2013 growth was 2.9%.”

That OBR forecast was made in June 2010. That’s before the Eurozone crisis kicked off seriously and when the oil price was $70, rather than the $100-120 it has been for the last two years. Things have changed since then.

The question you need to ask is whether any significant different policies would have made any difference to the UK’s economic outcome, bearing in mind the inevitable headwinds from imported inflation (petrol and gas bills through the roof) and the collapse of the Eurozone. And bearing in mind that everyone from the OBR to the IMF has pointed to inflation & weak trade as the main reason for missing earlier targets, and not austerity.

Perhaps a house building programme, a temporary VAT cut and higher taxes on the better off might have had a impact but in a £1.5trn economy the mooted £10bn fiscal stimulus Ed Balls talks about isn’t large. And the risks are always that any relaxation of fiscal policy has the unwanted consequence of pushing up interest rates marginally or weakening sterling, and thus hitting household incomes.

Economic recovery in the UK has certainly been dismal but the truly disastrous economies of southern Europe and the recent disappointing data from the supposedly much healthier Germany & USA shows that there are no easy solutions to a weak banking system and a massive deleveraging in the western world.

Osborne avoided the Triple Dip by doing all the things he said he wouldn’t. Borrowing up, money printing up, austerity relaxed (tax cuts for the rich). If he really wants to recapitalise the banks and bail out their billionaire and speculator creditors he needs to drive us into a serious depression and even then it highly unlikely that enough of the UK’s assets can be liquidated or that it in fact has enough anyway to save them before complete economic catastrophe.

The Tories say that not being in the Euro means that we have retained control of monetary policy so whilst the Eurozone economies are getting on with driving their economies towards depression by throwing millions out of work, destroying public spending, etc. Britain is taking advantage of its `independence’ by avoiding the issue and printing money like confetti. This only ensures that when it comes Britain’s economic catastrophe will make those in Euro land look relatively modest.

Osborne’s policies are actually no different from what New Labour is proposing except in name. He calls his Plan A and they call their identical policy Plan B. It’s an arguement of no more significance than which end a boiled egg should be opened.

Without ending the bail out of the banks austerity is simply the washing of the corpse ready for burial whilst stimulus is the application of defibulators to a headless torso.

“The question you need to ask is whether any significant different policies would have made any difference to the UK’s economic outcome, bearing in mind the inevitable headwinds from imported inflation (petrol and gas bills through the roof) and the collapse of the Eurozone.”

Try reading Jonathan Portes: The deficit is falling . .
http://notthetreasuryview.blogspot.co.uk/2013/04/the-deficit-is-falling.html

The media will be full of this. It will mean nothing unless people start to feel better off and more secure.

Duncan Weldon

“Today’s GDP figures were certainly better than expected, with growth of +0.3% topping the estimates of most economists.”

Not a surprise if you had listened last December. The one lesson I have learned over the years is the consensus is always wrong. Whenever there is a coalescence around a talking point that everyone knows to be true do the opposite. It pays to be a contrarian.

4:58 pm, December 10, 2012
“How do you account for the FTSE 250 being at a three year high? That is also a forecast but a forecast where people have money on the line. The 250 is a large chunk of the UK economy and equity investors appear to be implying that UK growth will not be as bad as the consensus forecasts.”

This media obsession with the GDP quarterly first release does my head in like no other issue. The endless headlines and comment on figures that are hardly ever accurate is truly bizarre. The figures will be revised for years to something more accurate. Moreover the revised accurate figures receive no comment and have no political impact. That is the annoying thing about these releases they have more political impact than is warranted.

If the number had been negative Mr Osborne would have got terrible headlines screaming about triple dips. The media totally oblivious that the so-called double dip has almost been revised away. The same thing happened with the last government and may very well have affected the last election. Most market analysts at the time believed that the recession had ended during August 2009. They were totally perplexed when the ONS said the economy was still contracting by releasing a GDP estimate that showed a contraction of 0.4% Q3 2009. The so-called contraction of -0.4 has since been revised to +0.4. Remember the headlines the last lot got when the economy only limped out of recession Q1 2010 with 0.1% growth. That has since been revised to 0.4% growth.

This focus on inaccurate GDP figures is an annoying distraction from the things that do matter. Both sides beat each other over the head with figures that really do not matter much. We have a construction industry operating 20% below its 2008 output. A manufacturing sector 15$ below its 2008 output. Youth unemployment of 20% where many will go on to be unemployable. A lifetime of petty crime and welfare dependency awaits them where we will all pay. Exporters who have preferred taking higher profits rather than rebuild market share. Those are some of the things ailing the UK economy. Yet the media talk endlessly drivel about double and triple dips.

I am sceptical that any of the politicians are radical enough or even have a clue to know what they are doing. Conversely I think the economy will outperform your pessimism because pessimism is now consensus and fashionable i.e. wrong. Money drives the economy not the government and as long as the BoE do not fuck up things, the economy will continue to improve.

Recap: The economy has been broadly flat over the last 18 months. GDP is currently lower than it was in the first quarter of 2008. Average real living standards are back at the level of 2003. Unemployment jumped by 70,000 in the three months to the end of February, amid the lowest growth in pay rises since 2001.

Before reassuring ourselves that Britain’s economy is finally on the mend, let’s at least await the business investment figures for the first quarter of 2013 to see whether business confidence is reviving.

Let’s be clear. Osborne is trying to talk up business confidence so businesses will start borrowing from the banks again – always providing the banks are willing to lend. The latest news of 19 April on bank lending to business was:

“Lending to businesses in the UK has fallen by a further £4.8bn in the three months to February, the Bank of England has said.” [BBC website]

@Bob B

“Osborne is trying to talk up business confidence so businesses will start borrowing from the banks again – always providing the banks are willing to lend.”

I always feel that this view is the wrong way around. Of course banks are being more careful about lending, and have expanded their margins on lending, but I’m pretty sure that they would lend on decent investment proposals. The question should surely be – why would businesses invest when they have no demand?

In any case, larger businesses are flush with cash.

Gastro: “The question should surely be – why would businesses invest when they have no demand?”

I surely agree – but then I confessed long ago to having a keynesian perspective. It is amazing IMO just how some still regard that as heretical, despite Jonathan Portes’s admission to having keynesian influences.

In the news, Mrs Merkel is reported as pressing for higher interest rates to be set across the Eurozone when Spain’s unemployment rate has reached 27%, with more austerity on the way, and with France at 10.2% in December 2012. Mrs Merkel is fixated on the notion that financial indiscipline is the root cause of Eurozone woes.

“There are now some 3.2 million people seeking work in France, 11.5% more than a year ago and 1.2% more than in February, the labour ministry said. The number of jobseekers is the highest since records began in January 1996.”
http://www.bbc.co.uk/news/business-22301063

I had been assuming that policy makers in the western liberal democracies were all more-or-less keynesian nowadays but that is clearly not so. Mind you, French policy makers have long held lingering doubts about keynesian economics. The last time a Socialist government there got worried about unemployment, it legislated to introduce a maximum 35 hour working week to better share the going amount of work around – an echo of 19th century employment theory in France, which btw is commended in Zola’s Germinal.

The 35-hour working week soon turned out to be highly impractical as the tourist and fishing industries depended on long working hours in their respective seasonal peaks. To take account of that, the 35-hour max got interpreted as relating to an annual average, which meant setting up bureaucratic monitoring systems to ensure that employers – and workers – weren’t cheating. In the end, the legislation prove to be risible and was repealed in 2008.

Btw I’ve been reading Robert Peston on: How do we fix this mess? It is a “popular” read with no pretensions to high theory. For all that, it is very illuminating on just how the banks and banking practices got us to where we are. So much for all that accepted orthodoxy about “self-regulating” markets – and for Gordon Brown’s delusion that he had ended “boom and bust”.

@Bob B

Re the 35 hour week – I’ll confess that my parent company used to be French, and I used to go there quite frequently for meetings and, by-and-large, the 35 hour week was rather popular. They worked “normal” hours and just took extra holidays. Anecdotal, I know, and in IT, but still …

Gastro: “by-and-large, the 35 hour week was rather popular.”

But trying to run a tourist hotel or restaurant, which relies on making money from the August peak in trade, becomes impossible and what of working fishing trawlers? On pressure from business and unions, it soon became clear that some flexibility would have to be permitted and that would involve additional costs of bureaucratic monitoring. Eventually, the legislation was repealed – so nothing stops businesses and their employees from negotiating limits to working hours and exceptions.

What was so fascinating about this was the insights this politics yielded into the populist French mindset – the nostalgia for the dirigiste state and the reversion to economic doctrines of the 19th century, such as the “lump of labour” and the wage fund theories. What adds to the curiosity is that there are outstanding French economists – such as Olivier Blanchard, previously MIT, now IMF chief economist – who are absolutely mainstream. They tend to have to move abroad to avoid entrapment but there is a long tradition of that too – which is why Descartes spent most of his adult life living in the Netherlands.

Many have already remarked on how the adoption of the Euro reflected a mindset that politics trumps economics in the mistaken belief that would speed EU integration. The result was that the small print of monetary unions got overlooked.

We are now witnessing the consequences of what follows when disparate national economies join a single currency area and so give up their national autonomy in setting interest rates to suit national conditions (hence the house-price bubbles in Ireland and Spain bringing the collapse of their banking systems when the bubbles burst) and rigidly fixed exchange rates, so the only means left to correct for loss of competitiveness (as shown by mounting trade deficits) is austerity to depress national prices and wages.

Mrs Merkel – probably under populist pressures in Germany – is fixed on this notion that the Eurozone problems are due to fiscal indiscipline. But the problems of Ireland and Spain in the Eurozone are due to collapses of their respective banking systems, not to the fiscal indiscipline of their respective governments.

This shows very clearly why it is crucial to have correct analysis free from political pollution.

Bob B

“They tend to have to move abroad to avoid entrapment”

Indeed, which partly explains why there are 350,000 French living in London.

If you are an ambitious young professional then you can “get on” and earn twice what you’d earn in Paris. Makes sense when you are in your 30s and then you can move back to France when you are older and have kids at school and benefit from the better social welfare provision and shorter hours, but having earned enough in UK to buy a nice house mortgage-free and have cash in the bank.

Shinsei1967

That doesn’t explain why Descartes (1596-1650) felt it expedient to spend most of his adult life living in the Netherlands.

Some in France were and are acutely aware of the deeply embedded dirigiste tradition there, hence this delicious satirical petition of the Candlemakers in 1845 to the national assembly in France, as drafted by Bastiat:
http://bastiat.org/en/petition.html

Their complaint was about unfair competition from sunlight restricting the market for candles.

How well I recall John Monks, when he was TUC general secretary (1993-2003), telling us all about why we needed to join the Eurozone. One of his key arguments was how those buying houses on mortgages would benefit from the lower interest rates in the Eurozone. I’ve love to know where John Monks got his (bad) economics advice from.

Btw about foresight of Eurozone issues, try this paper by Richard Portes – Jonathan Portes’s father – on: A Monetary Union in Motion: A European Perspective (2001)
http://faculty.london.edu/rportes/research/EMU(DP2954).pdf

@Bob B

Maybe you misunderstand what I was trying to say about the 35-hour week. AFAIU, you weren’t literally limited to 35 hours per week. So my French colleagues worked a normal 40 hour week as they had before. The surplus hours would then be rolled up as extra holidays. So, especially for your examples of seasonal work, I don’t think there was ever any legal problem with working longer than 35 hours per week for any part of the year or all of it, as long as you weren’t contractually obliged to work more than 35 hours every week (outside of statuary holidays).

There were, of course, restrictions on the maximum hours that could be worked – which affected our trainee doctors for example – but that was only ever designed to curb ridiculous numbers of hours per week.

In case of any dispute about just how bad is the recent performance of Britain’s economy, try this from Saturday’s The Economist:

“Other countries are struggling, too. But in the G20 club of big economies, Britain’s performance ranks second worst over the past five years, above only Italy’s. No slump in two centuries has been this bad.”
http://www.economist.com/news/britain/21576710-britain-has-escaped-recession-its-economy-remains-weak-house-building-industry-explains