Member Article

Triple dip? Maybe. Triple crisis? Definitely

Tony Dolphin, IPPR chief economist, shares his views following confirmation that the UK economy shrank by 0.3% in the final quarter of 2012.

All the talk is once again of a triple-dip after today’s GDP figures for the final quarter of 2012 showed the economy contracted by 0.3 per cent. If GDP also shrinks in the first quarter of 2013, then the economy will be back in technical recession – the third recession in the space of five years.

However, this still remains speculation. We will not know for sure whether the economy is back in recession for another three months. And even then, history suggests there is always a chance that the GDP figures will be revised and that any recession will be subsequently eradicated from the record.

What we do know, however, is that the economy is facing a triple crisis: stagnation, debt and imbalance.

• Stagnation: because real GDP remains over 3 per cent below its peak level, five years ago in the first quarter of 2008; and because over the last year GDP has not grown at all. 2012 has been ‘groundhog year’.
• Debt: because although household debt has fallen from a peak of 170 per cent of income in 2008 to 150 per cent, it remains at a very high level relative to UK experience prior to 2000 and compared to debt in other advanced economies
• .Imbalance: because the current account deficit in the first three quarters of 2012 was 3.7 per cent of GDP – on course to be the largest deficit since 1989; and because manufacturing output is now clearly on a declining trend. Hopes of an export-led recovery or a ‘march of the makers’ have evaporated.

The Government’s efforts to reduce its borrowing are becoming self-defeating. George Osborne has already conceded that he will miss his target for reducing public debt and figures released earlier this week showed, public borrowing in the first nine months of the current fiscal year was £106.5 billion, up from £99 billion in the same period of 2011-12. This is putting the country’s AAA credit rating under threat.

As a first step to get back on track, we need a temporary cut in employees’ national insurance contributions, using the historically low cost of borrowing to increase spending on infrastructure, measures to keep the long-term unemployed in touch with the labour market and an active industrial policy focused specifically on reversing the country’s poor export performance.

This was posted in Bdaily's Members' News section by IPPR North .