Is Britain economic stimulus failing to ensure UK economic recovery?
The latest news suggested that Britain is in recession. All major City analysts had predicted a recovery for the quarter ending July to September 2009 of around 0.2% on the Office of National Statistics (ONS) figures but the UK economy actually contracted by 0.4%.
BBC : http://news.bbc.co.uk/1/hi/business/8321970.stm: The article confirms the prediction by City analyst who was said to be disappointed by the revelation leading to a drop in business confidence and also, the sterling against most major currencies notably the US$ and €. The article also noted that a lot had been done through the Quantitative Easing(QE), and support of spending which does not seem to show any progress at all and pushed Britain to produce record of 6 quarters in recession. Personally, I think comparing against the likeness of events that took place in 1955 is rather immature especially when the size of the economy, the impact of other contextual factors such as globalisation, technology revolution, information technology were not so prevalent during that time. Also, on reflection of some of the elements that made up the GDP, the lack of manufacturing activity today and the huge service industry contribution, makes it a weak comparison.
RBS : http://www.rbs.com/downloads/pdf/economic_insight/cewb/19-10-2009-cewb.pdf
RBS Chief Economist, Andrew McLaughlin weekly brief on 19/10/2009 suggested that UK’s Consumer Price Index which is a measure of inflation remained positive at 1.1% as compared to the US and euro zone. This is to me an obvious indicator that the amount of government spending actually helped the economy to show some resilience in a very uncertain and dangerous financial environment. Lower interest rates and increase in money supply through QE and support for commercial loans and mortgages have proved to be successful. I think that the UK government have applied the right pressures by scientifically adopting a pro Keynesian and monetary approach to help rescue the UK economy. The brief also reported a recovery in the home market with the Royal Institute of Chartered Surveyors confirming this fact.
Guardian:http://www.guardian.co.uk/business/2009/aug/13/france-germany-welcome-economic-surprise reported that both Japan and Germany produced an economic surprise by both countries posting a 0.3% economic growth respectively in the quarter to June 09 when UK posted a contraction of 0.8%. Among the factors noted in the article was the success of both the former economies that were less dependent on the service sector, consumer debts were relatively lower than UK and business relationship with banks meant that credit lines were secured. I believe that there may be some truth in this but both France and Germany who did not seem to back significant government intervention may see their “economic surprise” short-lived. Why? I think that Alistair Darling’s interview with BBC on 24/10/2009 where he noted that German for instance started from a dip of 6.7% of National Income while Japan saw a contraction of 8.4% and thus, an indication of a quarterly rise by 0.2%-0.3% does not imply in anyway that their economies have recovered. Having reflected the actions of the various governments, I tend to think that approach of both Germany and France is fairly slow and gradual, but without the kind of “ammunition” like what Gordon Brown and Alistair has done to show consistent economic direction which has also been supported by Melvyn King of BOE and MPC, the foundation will be much stronger to grow. Many analysts now predict and concurs with Gordon Brown that UK will recover strongly during the Christmas run.
The latest news suggested that Britain is in recession. All major City analysts had predicted a recovery for the quarter ending July to September 2009 of around 0.2% on the Office of National Statistics (ONS) figures but the UK economy actually contracted by 0.4%.
BBC : http://news.bbc.co.uk/1/hi/business/8321970.stm: The article confirms the prediction by City analyst who was said to be disappointed by the revelation leading to a drop in business confidence and also, the sterling against most major currencies notably the US$ and €. The article also noted that a lot had been done through the Quantitative Easing(QE), and support of spending which does not seem to show any progress at all and pushed Britain to produce record of 6 quarters in recession. Personally, I think comparing against the likeness of events that took place in 1955 is rather immature especially when the size of the economy, the impact of other contextual factors such as globalisation, technology revolution, information technology were not so prevalent during that time. Also, on reflection of some of the elements that made up the GDP, the lack of manufacturing activity today and the huge service industry contribution, makes it a weak comparison.
RBS : http://www.rbs.com/downloads/pdf/economic_insight/cewb/19-10-2009-cewb.pdf
RBS Chief Economist, Andrew McLaughlin weekly brief on 19/10/2009 suggested that UK’s Consumer Price Index which is a measure of inflation remained positive at 1.1% as compared to the US and euro zone. This is to me an obvious indicator that the amount of government spending actually helped the economy to show some resilience in a very uncertain and dangerous financial environment. Lower interest rates and increase in money supply through QE and support for commercial loans and mortgages have proved to be successful. I think that the UK government have applied the right pressures by scientifically adopting a pro Keynesian and monetary approach to help rescue the UK economy. The brief also reported a recovery in the home market with the Royal Institute of Chartered Surveyors confirming this fact.
Guardian:http://www.guardian.co.uk/business/2009/aug/13/france-germany-welcome-economic-surprise reported that both Japan and Germany produced an economic surprise by both countries posting a 0.3% economic growth respectively in the quarter to June 09 when UK posted a contraction of 0.8%. Among the factors noted in the article was the success of both the former economies that were less dependent on the service sector, consumer debts were relatively lower than UK and business relationship with banks meant that credit lines were secured. I believe that there may be some truth in this but both France and Germany who did not seem to back significant government intervention may see their “economic surprise” short-lived. Why? I think that Alistair Darling’s interview with BBC on 24/10/2009 where he noted that German for instance started from a dip of 6.7% of National Income while Japan saw a contraction of 8.4% and thus, an indication of a quarterly rise by 0.2%-0.3% does not imply in anyway that their economies have recovered. Having reflected the actions of the various governments, I tend to think that approach of both Germany and France is fairly slow and gradual, but without the kind of “ammunition” like what Gordon Brown and Alistair has done to show consistent economic direction which has also been supported by Melvyn King of BOE and MPC, the foundation will be much stronger to grow. Many analysts now predict and concurs with Gordon Brown that UK will recover strongly during the Christmas run.
Reuter : http://uk.reuters.com/article/idUKTRE59O0UF20091025 (25/10/2009)notes the Chief Secretary to the Treasury, Liam Byrne acknowledged that a lot of money has been spent and record budget deficit failed to drag the economy out of recession and argued against cutting back on what has been done to support the economy. He when on to support a prediction of growth by the end of the year and especially for next year with phasing out of stimulus put in place. I tend to agree with his argument. Over the past couple of days, there have been quite a number of positive news from John Lewis, BSkyB, HMV, Acadia, Dabenham, retail sales of 2.8% Year-on-Year September 09, car industry decline easing and others.
BBC News: http://news.bbc.co.uk/1/hi/business/3197610.stm (16/10/2009). I discovered this very interesting article on the Office of National Statistics who denied errors in calculating vital economic data when they revised the July’s GDP from 0.3% to 0.6%. Melvyn King also argued that the statistical fog created were unhelpful to the measure of UK economic. I also noted an article produced on the 23/10/2009 by Stephanie Flanders who criticised ONS not having complete data when producing information about the UK economy and as such I question the reliability of the information for the prediction. In addition, Ben Broadbent, of Goldman Sachs also claimed that ONS was understating the UK economy. He quoted "Do today's data tell us anything about what is really going on in the economy?” I tend to agree, for the fact that ONS often revises their estimates upwards or downwards and as such the quarterly historical statistics may be unreliable. I also question how relevant these indicators are at fully comprehending the overall state of the UK economy. While ONS utilises scientific basis for calculating the economic performance, I am doubtful that they fully reflect the true state of the economy. I cannot support ONS claim that they produce information the earliest amongst bodies within the EU zone and is based on the best prediction at the time of publication. Question is, if reliable estimates are difficult to achieve through early publication, should they wait for a longer period of time, before publishing since reliance on models and statistical estimates utilising unfounded historical relationship may be worthless.
In conclusion, I am of the opinion that the UK economy is actually showing a gradual but clear route to recovery. A lot can be questioned on the negative publicity of the press and surprising how the business community react to such data. Also, there are plenty of reason for anyone to doubt ONS estimates especially with many companies and also, other economic indicators including unemployment, CBI and other reputable agencies/associations pointing to a recovery.
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