As the Office for National Statistics has announced this morning:
UK gross domestic product (GDP) is estimated to have fallen by 0.3% in Quarter 4 (Oct to Dec) 2023, following an unrevised fall of 0.1% in the previous quarter.
That means that the UK has now been declared to be, with the power of hindsight, in recession.
Hindsight is a wondrous thing of no great value in economics: declaring something to the case after the event is rarely of much value.
What is of value is spotting that we are in recession during the time that this is happening. I took the risk of pointing that out.
Few others did, relying on the technicalities that demand that recession not be called until that event might be over. If, however, economics is all about measurement in retrospect it is no better a tool for management than most financial accounts are, and they record what did happen and provide little clue to management as to what they should do now.
It's very odd that a profession like economics, that claims itself to be so dedicated to the merits of markets, is itself so unwilling to accept risk. It renders itself useless as a tool as a result.
I'll stick to my approach in that case. I only had to walk about, talk to people and sense the zeitgeist to know that we were in recession, and that for many people and businesses this state has existed for some time.
The question now is what do we do about it? We all know that the answer to that is for the government to spend more. Hunt, however, is looking for tax cuts that will make things worse and Reeves is refusing to spend even the paltry £28 billion she had set aside for this purpose.
Welcome to the world of economics where the need for action is appreciated too late, by when politicians say there is nothing much that they can now do about it. What a pathetic state to be in.
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On the, slightly, plus side, this means we are nearer the tipping point when the need is so glaringly obvious that a change of policy will happen. I expect this around March/April when CPI falls below 2%.
Once disaster is obvious, then fiscal rules can be re-written; “when the facts change, I change my mind” (never mind that the facts have been glaringly obvious for a long time). Interest rates will fall, spending will increase (though probably not enough ). And so we proceed to another stage in the boom and bust cycle.
What a way to run an economy.
I have redrafted the wisdom of Max Planck for British politics, below:
“A new political-economy truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die and a new generation grows up that is familiar with it …
An important scientific innovation rarely makes its way by gradually winning over and converting its opponents: it rarely happens that Saul becomes Paul. What does happen is that its opponents gradually die out, and that the growing generation is familiarized with the ideas from the beginning: another instance of the fact that the future lies with the youth.”
The British Neoliberal Conservatives are beyond help. They didn’t invest in or look after their children/grandchildren, beyond the short-term; it will “see me oot” is how they have lived. Their claim to have protected future generations was a lie. Our demographic time-bomb was created by them. The infrastructure disaster and low investment in the future? All theirs. Brexit? Theirs. The mess they are leaving everyone? Theirs.
Much to agree with
I think that is a pretty accurate description of the Tory mind-set.
When trying to understand Tory behaviour it is always wise not to underestimate the extent to which they are motivated by greed, envy and selfishness and their assumption that everybody else is just the same.
The major reason that so many on the right of UK politics are Trump fans and read or watch Murdoch’s productions is because they legitimize such behaviour.
And the bank of England’s
response………it beggars belief
Interest rates to remain above 2% for years, warns Bank of England chief
Andrew Bailey said there would be no return to the near-zero interest rates seen before the Covid pandemic
https://inews.co.uk/news/politics/bank-chief-interest-rate-cuts-2-per-cent-years-2906586
Agreed
“Andrew Bailey said there would be no return to the near-zero interest rates seen before the Covid pandemic”.
Why? Because all the BoE understands, or wants to understand is the one-trick pony of interest rates, that they think they know how to play. It isn’t enough, the world isn’t like that, but it exhausts the limits of their knowledge, so that is what will happen.
QE and zero-bound rates are outside their comfort zone; they didn’t understand it all, it frightened them, and they were quite dizzy with confusion (they still do not know what it all means); and whatever happens to you or me, what really matters to them is that they feel comfortable and authoritative doing the same thing, over and over whatever happens or how much the world changes beneath their feet; even if they do not know how anything works anymore and do not understand the world they think they are managing. In short, it is Max Planck syndrome, central banking is never ever ready for 2007, LDI whatever new hell the capacity to move and manipulate money in nanoseconds in a digital, global, totally financialised world; in central banking it is always déjà vu …… all over again.
Central bankers always learn only just enough, to know how to manage the last financial crash, after it happens. The next one? Out of their depth.
Thank you, Richard.
On Tuesday evening, I was at an event addressed by the Bank of England’s agent for London. He seemed relaxed about the recession and thought that politicians and markets are underpricing the risk of an escalation in the middle east, which is why rates won’t fall quickly, but settle around 3% over next year.
A former colleague, he a professional economist, and I were stunned at how detached and, frankly, uninformed the Bank is. This said, the agent explained who he and the other agents meet. They meet business only and rarely small entrepreneurs. It was implied they do not meet members of the public, civil society, unions etc.
@ Richard: This allows me to air something I have been thinking about: Why don’t you set up a people’s shadow monetary policy committee, mimicking Ernst & Young, City AM etc., and have the likes of Clive Lewis and Prem Sikka promote its thinking in Parliament and elsewhere?
John McDonnell tried it.
I nominated the members of it in the three days we agreed with each other
Who would be on it now?
Thank you, Richard.
Your good self, Prem, Marianna Mazzucato, Ha-Joon Chang, Miatta Fahnbulleh, the lady from CLASS whose name escapes me, Grace Blakeley and Larry Elliott for starters.
To muse on…
That would need funding
I like the idea discussed here (although it is just encouraging the economists – something that rarely ends well, not least for anyone else). I accept the funding issue (if nothing else comes to mind – crowdfunding?). I would like to see someone with real, direct knowledge and understanding of Japan’s central banking (where QE, roughly, first arose). Another name that comes to mind is Lydia Prieg (fresh aerosol in a musty, windowless room).
“….declaring something to [be] the case after the event is rarely of much value”.
Don’t knock it, Richard. It is what makes economics the wondrous science the politicians have made so important they follow the economists forecasts; and then have the hindsight within three months, just to show how spectacularly wrong they were. It was only last week the Conservative press peddling this stuff, were crowing; what recession?
Fourteen years of wasted time with the Conservatives? No. forty plus years of neoliberal guff – and you still can’t be sure that the penny has dropped. At least 20% of our electorate will still vote Conservative, perhaps enogh to win in an FPTP system, and in any case enough of the rest will vote for a neoliberal Labour Party that guarantees nothing will change.
And that, in sum is Britain. Primed and ready for the scrapheap of history.
The Tory party’s constant claim that it is only a technical recession has reached the level of denial of reality of Monty Python’s Black Knight who claimed that the loss of his arm and leg was only a flesh wound.
Looking back at what has happened to Britain since Cameron became Prime Minister I strongly doubt that recession is a strong enough term to describe what has happened. A more accurate description would be to say that since 2010 the policies pursued by the UK government have produced something nearer a modern equivalent of the prolonged slump of the 1930s.
To take but one very hard to deny problem, as a direct result of the Tories policies since 2010 the roads upon which the UK economy is now so dependent are now in the kind of inadequate, rutted, mangled and potholed mess not seen since at least Victorian times. The Tory disconnect from understanding that a countries economy is highly dependent on the state of its infrastructure is almost totally complete.
But of course that is only a technical problem.
Call me cynical but were the runes last year ” misread” to save the Tory government the embarrassment of having a failing economy confirmed?
I looked at the ONS statistics yesterday. Inflation has been zero since last June and the price indices fell in January. In other words, all of the 4% year-on-year inflation occurred between January and May last year, and the only reason that inflation has ‘stayed’ at 4% was because the drop this January matched the drop last January. If we are already in recession, how much worse will this have to get before the idea that inflation is still ‘too high’ starts to be revised? Or will we again be dependent on 20/20 hindsight?
You are right
Thanks for that confirmation!
So, looking forward, if the government measure of ‘success’ is a 2% year on year headline figure, this means that inflation would have to rise by this amount (actuallly 1.8% I think) in the next four months to meet this ‘target’ by May, i.e. to bring inflation down to the target, you’d have to increase inflation to an annualised rate of over 5%!
If there was actually an annual rate of 2% inflation over the next 4 months (OK, so I know it’s not exactly linear), that suggests 0.6 or 0.7% over 4 months which, given that the last 8 months have been zero, would become the headline annual rate in May (i.e. undershooting the ‘target’ by more than 1%).
And if the present zero inflation environment persists for another 4 months, the headline rate in May would fall to 0.2%, before hitting zero in June.
Aren’t targets wonderful, and doesn’t Andrew Bailey get paid a huge amount of money to talk garbage?
You understand what 99% of financial journalists and maybe 199% of people at the BoE do not
I sometimes ask myself the question “Is endless growth possible?” The seminal Limits to Growth report certainly concluded it wasn’t. The essential reason seem logical to me; endless economic growth (which is directly dependant on endless growth in energy consumption) is mathematically impossible in a world with finite resources.
I’m not sure you have ever done a blog specifically on the limits to growth. I did a short search on your blog and couldn’t find a dedicated post although you have addressed limits to growth in your blogs from time to time. For instance in your blog of January 12th, 2012 you wrote “It’s my suspicion that we are coming towards the end of growth. There are two good reasons for thinking so. The first is that we no longer wish to abuse our environment in the way we did. The second is that we are beginning to realise that we have enough ‘stuff’. There are only so many computers, mobile phones, sofas, and even cars that we need. Of course the distribution of that material well-being is inefficient, and even offensive on occasions at this point of time, with some being deprived of what they need whilst others have excess way beyond any reasonable requirements, but the point is that we do have sufficient to share to meet all reasonable material needs that anybody now has.”
Maybe at some point you could do a post about growth, the limits to growth, what a sustained zero growth economy might look like, degrowth, etc.? Have we indeed reached the tipping point? Can capitalism in it’s current form survive zero growth. If not what would have to change?
I am not an economist. I’m just someone who finds himself thinking about growth, sustainability, climate change, and the way forward in general. I struggle to see a joined-up picture. And (to be honest) I feel very pessimistic about the overall direction of travel. I cannot see that the economic joy ride (in general) we have had since the end of WWII can continue. And I fear the consequences of sustained zero growth would be seismic.
Apologies for the long comment above … and too many questions. Please note I submitted a similar(ish) comment a year or two ago.
I could do one
I have questioned growth since I was a sixth former when I read E J Mishan’s ‘The coast of economic growth’
But there is a difference between absolute and financially measured growth
I should do a blog on that – you are right
It’s a “big picture” subject. I’m sure it would be much appreciated by all – and generate a lot of interest, comments and debate. Thanks.
A blog with your perspective on growth, steady state, degrowth, prosperity without growth (and such issues as ‘decoupling’, implied in your remark differentiating absolute and financial growth) would be very interesting! (Sheffield hosted a debate between Michael Jacobs and Jason Hickel last year. On YouTube somewhere I think.)
Globally we’re clearly living beyond available resources, although this is masked by distributional issues; and nationally we’re exceeding all sorts of ‘budgets’ – carbon being the best known. Potsdam Institute (Rockstrom et al) present an in-depth review of their 9 planetary boundaries (six already exceeded) which doesn’t bode well…
This might even help to gain traction with the Greens! I think they lack economic know-how so are easily captured by a single viewpoint, via their policy-making processes.
It’s on my list …..
Don’ t they always publish a range of uncertainly – and point out that it was ‘0 plus or minus sd of 0.6’ or whatever – at least that would be consistent with what theyare saying now. They really ought to headline the range rather than the mean – and encourage BBC to do so.
You have been confidentily predicting recession – ever since interest rates started to increase. But that was more than just what you saw or felt – wandering around and talking to people/businesses.
“I’ll stick to my approach in that case. I only had to walk about, talk to people and sense the zeitgeist to know that we were in recession, and that for many people and businesses this state has existed for some time.”
This very true. I only have to walk around my local city center and see all the boarded up shops and empty office space to know that things are bad. Of course, it’s possible the economy has changed, but there are just so many things that are bad right now, it doesn’t surprise that “officially” it has finally been recognised. There again, I have always been fairly skeptical of official numbers or the way things are calculated and presented to us. The reality is that for many people, their own “personal recession” has been going on for a long time. Tories seem unable to see it from their ivory tower, but It’s real.
You all know the tired mantra? Tax cuts. Not.
I agree with this but I would add is that there is too much statement of the bleeding obvious in economics and not enough digging deeper into the causes of inflation.
Why?
Because markets are seen as perfect and ‘innocent’, that’s why.
And it is regulation, decent pay and conditions and investing long term – in fact anything long term – that gets the blame in this get rich quick bullshit we live with.
I agree with this but I would add is that there is too much statement of the bleeding obvious in economics and not enough digging deeper into the causes of inflation.
Why?
Because markets are seen as perfect and ‘innocent’, that’s why.
And it is regulation, decent pay and conditions and investing long term – in fact anything long term – that gets the blame in this get rich quick bullshit economy we live with.
BBC Radio Scotland GMS, 8am this morning began its report as follows:
“The ‘R’ word rears its head; but after ending the year in recession, is the economy now on the road to recovery?” That is about as positive a Conservative spin as you could put on a recession, so recently denied by Conservative apologists, and an economy that has flatlined or teetered on the edge of recession for over a year. We have almost the worst inflation figures in Europe, and above the US. Most advanced countries are not as incapable of growth as the UK. The ‘R’ suggests news editors who can scarcely face using the word. By 12 noon BBC Scotland News had judged it had better tone down the Conservative spin in its opening headline.
I recall some six decades ago (so in the Wilson era, maybe after the notorious ‘pound in your pocket’ speech: shock, horror – the pound worth 14% less v the dollar!) my father – an insurance company manager but Manchester Guardian reader – telling me, a naifve schoolboy trying to make sense of the news, that economics was like driving down the road trying to steer the car whilst only looking out of the back window.
And as regards changing the profession, it happens one (professor’s) funeral at a time. But not even that, once whole departments and their appointments committees are captured by an ideology: neoliberal thought and mathematical modelling
Torsten Bell was saying this evening that GDP *per capita* has fallen for seven consecutive quarters.
With all the caveats that surround the usefulness of GDP as an economic measure (or lack thereof) GDP has been held up in the last couple of years by an increased population, but on average each is poorer.
Of course, that reduced GDP per capita it is not evenly distributed. Some have done very well. And many others have not.
Your last point is especially important