British GDP grows 0.2 % what lies ahead

April 23, 2010

The latest data on the first quarter results for the British GDP shows that while growth was positive it was barely so at 0.2 % for the quarter.Where is the British economy likely to go in the months ahead? If one compares this recession to previous slumps then it would seem that while it is a very severe recession whose trajectory resembles that of 1930-34 it is not as severe and more resembles the recession of 1979 to 1983 when there were five consecutive quarters of negative growth from 1980 to the first quarter of 1981 followed by five more quarters of very anemic growth and two of slightly negative growth.
So far the British economy has slumped about 6 % roughly what it did in the early 1980s.There have been 6 consecutive quarters of negative growth including two where the overall slump exceeded 4.4 % the greatest two quarter slump since the 1930s. The last two quarters have seen positive growth, but barely so.

It is definitely not the time for cuts to public spending as this will only derail the modest recovery that is now haltingly under way.The recession this time has had 6 quarters of negative growth plus the major financial collapse in the City which has greatly complicated the recovery. Six months to a year from now it will be much clearer how the recovery is going and then it will be time to examine the prospects for efficiency gains in government as the unemployment rate begins to drop.

Those who are concerned about the British deficit and debt ought to realize that in the 1950s the UK had a much larger debt to GDP ratio than now(191 % in 1950 and 141 % in 1955 versus under 55 % now))
and   was only one third as wealthy measured in inflation adjusted per capita GDP and still managed to handle its debt load.

The shock of the financial crisis on public accounts cannot be solved overnight . It can be sensibly managed over a number of years, once the unemployment rates are reduced to reasonable   levels.The Bank of England should do its job of helping to manage Treasury debt in an orderly fashion ensuring low interest rates continue.