Economy stuck in the doldrums

by Daphne Liddle

PRIME Minister David Cameron welcomed the news that Britain’s gross domestic product (GDP) for the last three months is marginally up on the previous quarter — to 0.5 per cent from 0.1 per cent.

But such small figures point to an economy that remains weak and hovers on the brink of another recession.

James Knightley, at ING Financial Markets, said: “While the Q3 [third quarter] growth rate looks respectable, it is important to remember that this follows a Q2 figure depressed by having fewer working days because of the royal wedding and supply disruptions caused by the Japan earthquake/tsunami.

“So for the economy to have only grown 0.5 per cent in Q3 suggests the underlying picture remains weak.”

The giant union Unite commented that “the paltry GDP growth figure of 0.5 per cent for the last quarter masks the true nature of the crisis facing the British economy.

Unite general secretary Len McCluskey said: “We should not be fooled by the superficial gloss that ministers will put on this paltry figure of 0.5 per cent.

“The British economy is still heading towards the rocks of a double-dip recession, unless George Osborne introduces a much-needed ‘Plan B’ rescue package.

“People are losing their jobs and those that have them feel insecure, so they are not going out to spend in the high street — the promised boost in private sector jobs to soak up the job losses in the public sector is an illusion masquerading as a truth. It is clear that more demand needs to be injected into the economy urgently.


“The savage cuts to the public sector will hit the local economies in cities and towns across the UK and, as a result, will cause more economic pain to families and communities.”

The union called for a cut in VAT, a boost for manufacturing capacity, scrapping Private Finance Initiative commitments that are crippling schools and hospitals and reform of the tax system to make the very rich pay a lot more.

Figures are not likely to improve as consumer spending is falling.

Consumption in the second quarter of 2011 fell by -0.8 percentage points; the sharpest fall since early 2009, when the country was still in recession.

With wages rising at less than half the rate of inflation, public sector workers facing a pay freeze, and tax credit cuts, benefit reductions and increased VAT further reducing family incomes, the TUC expects reduced household spending to be an even bigger drag on growth in the months to come.

Meanwhile in Europe the prospects for the eurozone have been thrown into chaos again after the Greek premier, George Papandreou, announced that he was putting the terms of the eurozone rescue package for his country’s economy to a public referendum.

The other parties to that deal had thought the package was agreed and settled. Now the possibility that the Greek people could reject it has thrown global markets into chaos again.


Unison general secretary Dave Prentis said: “The evidence just keeps on mounting that the Government has got it very wrong on our economic recovery. Public sector cuts are not being offset by private sector growth, and all across the country, people are really struggling.

“Our research shows that many families are thousands of pounds worse off as a result of the VAT increase, indirect tax and benefit changes and frozen pay at a time of high inflation.

“Now the threat of a pensions hike could take hundreds of pounds more out of their pockets. This £4 billion tax on public sector workers is economic suicide — we need families to be spending more — not frightened to go to the shops. “

Mark Serwotka, general secretary of the civil service union PCS said: “Against a backdrop of the highest unemployment since the Tories were last in office, and people’s living standards being driven down, it is not at all surprising that our economy continues to stagnate.

“This Government urgently needs to start creating jobs, instead of cutting them, to lift the public sector pay freeze to put money in people’s pockets, and to abandon its unfair and unnecessary plans to raid the pensions of our public servants.

“Millionaire ministers are dangerously out of step with the lives of the rest of us, and their slavish adherence to cutting public spending is hugely damaging to our economy and risks blighting our communities for years to come.”