The UK economy grew by just 0.1% in the first quarter of 2018 and by 1.2 % over the year. Both figures are the lowest for more than 5 years.
The weakness in the economy is across the board. As the chart below shows, the brief support to growth from manufacturing output has fizzled out. Construction is in steep decline and services are weak (with retail in decline and growth slowing across all other industries in the sector).
The ONS curtly dismissed the idea that snow might be behind the weakness: “While some impacts on GDP from the snow in the first quarter of 2018 have been recorded for construction and retail sales, the effects were generally small, with very little impact observed in other areas of the economy”.
Indeed. Instead, the weakness is Q1 is hardly an aberration. It is a continuation of trends in place since the coalition government took office in 2010. Since that point GDP growth has averaged 2.0% a year against a long-term average of 2.8%.
Rather than snow, this sustained weakness has been caused by the avalanche of cuts under austerity.
In Budget 2010 the Treasury told us thatThe most urgent task facing this country is to implement an accelerated plan to reduce the deficit. Reducing the deficit is a necessary precondition for sustained economic growth. To continue with the existing fiscal plans would put the recovery at risk, given the scale of the challenge. High levels of debt also put an unfair burden on future generations.
According to the public sector finance figures this week the government has finally managed to ‘balance the books’ – the ONS confirmed the current budget for 2017/18 was back in the black.
This was meant to happen in 2014-15, so it took nearly twice as long as expected. Moreover, rather than being a ‘precondition for sustained growth’, it has proved a guarantee of sustained weak growth.
The Treasury got it back to front. The only possible way to balance the books is by delivering sustained growth. Spending cuts instead seriously damaged economic growth and so seriously damaged tax revenues and meant the books were not balanced in the time expected. (Tellingly Phillip Hammond actually abandoned this target a couple of years ago, presumably because he recognised that it didn’t work.)
The extra borrowing has in turn meant that no impression whatsoever has been made on the ‘high levels of debt’ that are an ‘unfair burden on future generations’.
Under the original plans public debt was expected to peak at 70.3% of GDP in 2013-14. In March this year the OBR predicted it would peak at 85.6 % of GDP in 2017-18. The ONS figures this week showed public debt in 2017-18 £15billion higher than the OBR expected at 86.3% of GDP.
Because this is so much higher than expected, the Treasury’s back-to-front logic leads to a requirement to continue cuts relentlessly through to 2022-23 (at least – see e.g. here).
But the only hope for GDP and for the public sector finances – let alone to end the wages crisis – is that the Treasury finally recognises it has got things disastrously wrong and reverses austerity. Over to Frances O’Grady:
One week of snow doesn’t explain a decade of weak growth, dismal productivity and falling wages. It’s the avalanche of cuts that has done the long-term damage.
“We need to modernise Britain’s infrastructure. The government should set up a National Investment Bank to upgrade roads and rail, and to bring high-speed broadband and clean energy to every part of Britain.
And it’s time to get our public services back up to strength. Schools, hospitals and other vital services are part of Britain’s core economy. If they remain starved of resources, the rest of the economy will continue to struggle too.”