The second quarter UK productivity number is very scary. It shows output per head within the UK economy shrinking.Why would that happen? Firms are hoarding labour. Activity is declining, but firms are keeping workers on the payroll. However, this won't go on for very long. Sooner or later, firms will start laying off workers and that means higher unemployment.
13 comments:
Good point. It's like the early 90s - holding on, hoping, doing jobs at or below cost to keep the cash flow going.
UK productivity *growth* goes negative, I think you mean. Even the current government cannot manage a negative productivity, I hope.
The big whammy is coming in about two months. What will this look like? It is going to be a tsunami of excrement, including a jump to 4 million unemployed, wiping out of most savings, drying up of all credit, a crashed pound, an obliterated housing market. We will experience what the US has had over two years, in 6 months.
I have to agree with anonymous (18:05) above, despite his apocalyptic tone. We ain't seen nothing yet here in the UK with regards to the downturn in the economy. As you say, companies are hanging on to labour despite reduced sales/orders hoping for an upturn that isn't coming. I reckon they will hang on until Christmas. After that layoffs will be everyday news. Unemployment will rise rapidly, as will repossessions. Companies will go bust. Consumer spending will fall significantly. Govt tax revenue will nosedive and spending skyrocket. Tax rises/spending cuts may occur in the next budget if the borrowing requirement gets so big that even this govt baulks at borrowing so much. It's all in the pipeline, so get ready for it. And the TARP won't stop it either......
Definitely a significant downturn is happening. I myself will be out of work next month after 10 years in work. It's hard to believe that taxes won't start to rise significantly to cover lost revenue and benefits. This in turn will accelerate the downturn and will be another reason why house prices will not start to rise for a long time.
Could just be that we're importing less.
For example, making a knife:
Make the blade, make the handle, stick them together, package it - sell it.
If I were to buy in the blade and handle, suddenly my productivity goes up. If I were to *import* the blade and handle - the whole country's productivity goes up.
And the reverse also applies.
I don't think we're importing less - just look at the figures a few posts down in this blog.
Negative productivity growth will certainly raise eyebrows over at the Bank of England. If anyone is desiring a rate cut (Alice, I know that you are not), hold your horses, its not a sure thing because negative productivity growth acts to inhibit inflation pressures, or vice versa in this case.
What do you think? Will the BoE lower rates in 2008? I suspect that a rate cut is on the horizon. What is the consensus?
Rebecca
"I don't think we're importing less - just look at the figures a few posts down in this blog."
Food has gone up by multiples. Oil is up my multiples (just recently down), yet balance of trade hasn't exploded similarly. This either means the other stuff we import has got cheaper. Or we're importing less of it.
I suppose if I crashed my train it could be considered 'negative' productivity, Hugo.
I shouldn't jest about things like that - I do try my best not to crash I can assure you.
Who still thinks the future is inflation?
Nick
"Who still thinks the future is inflation?"
Depends on how you define it. My hunch is that anything produced domestically will get very cheap. Anything imported is going to get expensive.
Shame we import so much food and fuel.
Never mind - who needs to eat and keep warm anyway?
With houses down 12.4% per Nationwide, that's £37,500 knocked off the price of my target house in just 12 months. Add in the negative carry avoided through renting. Add in these amounts being effectively after-tax.
Why, it's equivalent to something like a £60k salary. Not buying a house yet has been like having a great job and saving every single penny that Gordon leaves you with.
Consider me unworried by an extra few hundred on my food and heating bills.
Nick
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