Britain is heading for a triple-dip

Jan 03, 2013

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The British economic data released over Christmas and the New Year did little to suggest that the slowest recovery in 100 years is set to gather much momentum. The number of retailers filing for bankruptcy rose by another 6% in 2012. Consumer confidence fell sharply last month from its 18-month high in November.

A survey suggested that almost two-thirds of consumers plan to lower their spending in the next six months. A gauge of the manufacturing sector reported an uptick in December, although output still looks headed for an overall decline in the fourth quarter.

What the commentators said

Ignore all the fuss about a triple-dip recession, said Chris Giles in the FT. It’s perfectly possible there was another slight fall in GDP in the fourth quarter, while output could also decline in the first three months of 2013. Two shrinking quarters in a row technically means a recession.

But worrying about whether growth is slightly negative or positive obscures the big picture: the economy has essentially been flat since mid-2010. “The real issue for 2013 is whether self-sustaining growth” can finally return, and that “remains sadly in doubt”.

“It looks another hard grind,” agreed Geoff Dicks of Novus Capital Markets. “There is no help in sight” for exporters given the malaise in the eurozone, Britain’s key trading partner.

Meanwhile, the key reason for Britain’s poor performance in the past three years has been lacklustre consumption, and that seems unlikely to change any time soon. Inflation is still some way above earnings, while consumers are also still trying to reduce debts run up in the credit bubble.

Then there are tax hikes to consider, said Roger Bootle of Capital Economics. Fiscal policy will tighten by around 1% of GDP in 2013. With overall demand so weak, it’s hard to see companies, who admittedly are sitting on big cash piles, upping investment. Add all this up and the chances are that the economy will be “just about flat” this year. Hopefully, 2014 will be better. “It couldn’t be worse. Could it?”

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