U.K. Economy Continues to Contract

The other country with what will, eventually, be called a "basket case" economy - due to its huge, unsustainable twin deficits and dearth of domestic savings that finally resulted in finance and consumption led growth to permanently stall - released new data indicating that economic growth continued to contract in the third quarter, disappointing analysts who were expecting the first gain in a year-and-a-half.

This report in the Telegraph has all the details:

The economy unexpectedly shrank by 0.4pc in the third quarter, defying expectations that the UK had emerged from recession with 0.2pc growth. Shadow Chancellor George Osborne said the figures were “deeply disappointing”.
The Chancellor however insisted the figures were in line with his forecasts. “I’ve always been clear that growth will return at the turn of year,” he said.

Manufacturing and construction made negative contributions to economic growth and the overall contraction from the start of the recession has now reached 6 percent, the largest since the Great Depression, also known as the Great Slump (at least according to Wikipedia).

John Philpott, chief economist at the Chartered Institute of Personnel and Development, noted that the recession "looks more like a depression" a view that was echoed by Edmund Conway in this piece that also appeared in the Telegraph.

This recession just became a depression
It is difficult to know what to be most shocked by in the gross domestic product figures published by the Office for National Statistics this morning: the fact that we are in the longest-lasting deepest continuous recession in recorded history or that no-one in the City foresaw it*.

Leaving aside the City’s failings, with which we are intimately familiar, the scale of the economic collapse is disturbing. The National Institute for Economic and Social Research has been calling this a “depression” rather than a recession for some time – these figures surely now underline such a description.

Mr. Conway then goes on to break the numbers down a bit with the expected results.

Things don't look very good across the pond and, naturally, at a time like this, many look to assign blame for what has happened and, naturally, economists once again are the prime suspects as detailed in this story at The Guardian.

Economists perform dismally again
City fails to predict longest recession since records began

So, there we have it, the recession is the longest since quarterly records began in 1955 and, guess what, the City again failed to predict it.

The average forecast from economists in the Square Mile was that the economy had expanded by 0.2% in the July to September period. But in fact, according to the ONS's preliminary figures, it contracted by 0.4% - the sixth drop in a row. That's a big forecasting error, really big.

Sure, we had had dismal industrial output figures recently and poor retail sales figures yesterday, but, undeterred, the guys in the City decided those warning signs did not change the view that all the stimulus of 0.5% interest rates and all that quantitative easing, combined with cuts in VAT and a falling pound, were bound to push the economy back to growth in the third quarter.

Of course, these are the same people who failed to see the recession coming so really we shouldn't have even paid any attention to their forecasts in the first place.

Ouch! Economists are really having a bad year.

Bloomberg reports that the crew at the Bank of England (mostly economists, you'd think) may have to print up a bunch more money to help the cause.

Come to think of it, economists are having a bad decade.

Comments

[TradingHelp...:]

Sorry I am going into rant mode:

If more evidence was needed that the Bank of England’s quantitative easing (QE) program was wholly ineffective in its efforts to generate real economic growth, it arrived by the truck load this week on confirmation that Q3 GDP contracted and the UK economy is still officially in recession.

In fact it would take a vivid imagination or a deep misunderstanding of financial markets to think that the BoE’s purchase of £175bn worth of government bonds, bought with printed money, would do anything economically productive at all.

Investment banks and other financial institutions happily sold the Gilts to the BoE and received the cash in return. Those institutions then proceeded to either shore up their balance sheets or speculate with the cash buying equities and other risky assets.

Add into the equation the fact that some of the Gilt sellers were non-UK based banks and therefore much of the proceeds of the £175bn injection left the country, you have yourself a very silly UK economic recovery strategy indeed.

Ask yourself these questions:

How can £175bn’s worth of financial speculation, the buying and selling of financial instruments create real jobs or real economic growth? It can’t, but it can boost bonuses in the City and give institutional traders money to play with.

And considering which companies got us into this economic mess is there an industry less deserving than the banking industry for such a cash injection? Many people think not.

It is this type of financial insanity; speculation with cheap money, that prompted Matt Taibbi to describe a certain investment bank as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

So whilst the UK struggles through its longest recession since records began and unemployment continues to worsen fairly considerably, UK equities have bounced 50% since the trough of the bear market. Those facts sum up why the BoE’s recent contribution to the creation of real jobs and real economic growth is so small it’s barely visible to the naked eye. But their chums in the City are sure to receive a cracking bonus at the end of the year after speculating with the quantitative easing program’s cash.

For the record UK GDP contracted 0.4% in the June to September quarter. The economy has now been in recession for six consecutive quarters. Year-on-year contraction now stands at 5.2%. Industrial production over the same period has fallen by 10.4%. UK economic output in Q3 totalled £347.50bn compared to Italy’s £350bn (Source; Citigroup). Admittedly the report of a 0.4% contraction is preliminary, and could be revised upwards, but it’s equally possible later revisions could downgrade the data.

Leading commentators have suggested the BoE and the Government with its equally clueless approach to the economy should be “embarrassed” by the latest data. I think ashamed would be a more fitting emotion.

Alistair Darling, the Chancellor of the Exchequer, responded to the GDP news and predicted hopefully "Growth will return at the turn of year”.

Unfortunately, Darling, hope is not a strategy.

Oct 26 06:09 AM

[Moon Kil Woong:]

The UK was not just saddled with losses from the US for being suck pushovers when buying bad debt, but also contracted every bad habit the US has. By mirroring the US by running massive deficits they've ruined their currency. By duplicating zirpish rates and QE they have landed themselves in perpetual recession. By copying the US in financial deregulation they got the housing bubble, the derivatives mess, and the uncontrolled legerage the US is choking on.

Really, the UK's problems are almost all self-made. However, the roots of them all stem from copying the US.

Oct 26 06:59 AM