Friday, 25 July 2008

GDP growth slowing sharply

First quarter GDP numbers were very disturbing. The UK is in dive mode. Since last summer, the UK economy has slowed sharply and based on current trends, it could hit negative growth territory during the second half of this year.

Time for an interest rate cut, perhaps? Inflation doesn't seem to be paying much attention to the slowdown in growth. According to the latest Bank of England agent survey, businesses are reporting a significant increase in cost pressures.

The MPC might think it is playing a balancing act. To me, it looks like they have fallen off the wire and hit the floor.


aSteve said...

I think that the MPC are playing a balancing act... and a difficult one at that.

IMHO, a depression (not a recession - the former is caused by excess ill-informed capital investments, while the latter is caused by excess ill-informed inventory.) is inevitable. There isn't a blind thing that the MPC can do about it unless they've got a tardis can can go back to, say 2003 or 1997; educate the treasury and then hop back to a brighter 2008. Capital-scale malinvestment is the problem, and that can't be fixed by interest rates alone... reduced rates might fend off a recession (if, with cheaper credit, people are inclined to purchase the otherwise unwanted inventory) but not a depression.

Asset prices need to reset... until this happens, there's not a blind bit of help that the MPC can offer to the economy.

Anonymous said...

Thanks for this, Alice. My playful questioning:

I wonder what margin or error the statisticians allow themselves as acceptable in initial retail and GDP figures, especially when measured quarter on quarter.

If I measured my wooden garden shed after a wet winter, and established that it had grown by a miniscule amount (0.2%, 0.3%. etc.), I think I might have greater confidence in that measurement than one which involves the potential subjectivity of adding up lots of submitted or collected production or retail figures and making quarter on quarter comparisons by using an output or consumer price deflator, and coming up with a miniscule quarter on quarter rise.

That seems a bit like moving my shed half-way up a hill and introducing an expansion factor for reduction in air pressure at higher altitude. Maybe it would mean something. Or perhaps belief in the validity of the comparison might be optimistic.

I may make such a seasonal comparison of my shed's size, or of an economy, with the best will in the world, but does it really mean anything?

Are the statisticians doing any more than making a safely miniscule guess and assuring themselves with back-of-an-envelope calculations that it's not out by an unacceptable margin of error, and that later revised figures won't cast them in a bad light?

Does it suit the statisticians, for the sake of their funding masters (notwithstanding claimed independence) to come up with a microscopic expansion rather than a microscopic contraction, or a very microscopic contraction rather than a slightly less microscopic one?

Perhaps we will discover from final revised figures that it is already just a little worse already than government statistics encourage us to believe.

B. in C.

Anonymous said...

Perhaps we need a RISE in taxes combined with a CUT in interest rates (to Eurozone levels).

If our average UK rate is 2% higher than Eurozone, this can only be paid for (in the long run) by inflation relative to the Eurozone.

Who to tax? - the people who have made windfall gains over the last 10 years. 'Gains' include overpaid salaries for imaginary expertise.


Anonymous said...

B in C

I like your 'wet garden shed' analogy of measuring the national economy.