Chancellor’s Forecasts Undermined By Latest GDP Figures

(BBC) – THE ROSY GDP FORECAST BY ALISTAIR DOWLING WAS SERIOUSLY UNDERMINED TODAY as the Office of National Statistics (ONS) published its preliminary results for the first three months of 2009.

GDP FiguresThe UK’s Gross Domestic Product (GDP), which measures the value of all goods and services produced, displays the worst six-month decline in GDP since the ONS first began publishing figures.

The ONS figures also showed that GDP for the year to the end of March was down by 4.1%.

EditorialIt is difficult to see how the chancellor can justify his budget prediction of a 3.5% decline in GDP this year, or his assumption of a return to growth in its last quarter. It increasingly looks like the raw economic data, upon which his budget was based, has been conveniently presented as a glass half-full, rather than a glass half-empty.

Of course, Mr Darling is in an onerous position. If he does not put an optimistic gloss on the current situation, he could later be accused of creating panic in the markets and making matters far worse. (Just as the press were accused of being the catalyst to Northern Rock’s demise). Politically, he has no option, other than to boost morale; but he does not have the right to seriously mislead the electorate.

The fact is that the outlook is grim, and there is little point in directing passengers towards the band playing on a listing deck — when the life-belts brandish the name: ‘HMS Titanic.’

What the histogram clearly shows is that the third-quarter recession of the 1990s was followed by an immediate recovery, which hiccuped a return to growth over the next two years. Moreover, it shows that the first green shoots took a full year to materialize, and a further three quarters to fully establish.

Any talk of green shoots at this particular stage in the cycle is simply the whiplash from the tsunami, which has ravaged the financial system. The worst may be over; but there are yet more aftershocks to be felt. The problem is that the government has already committed all its reserves to the battle.

The latest forecast, from the Centre for Economic and Business Research, is for a 4.5% contraction this year; making 2009 the steepest single-year contraction in economic activity since the 5.1% fall in 1931.

What all this means is that the chancellor’s figure of £220 billion, which he plans to raise this year, could be easily exceeded. And it could well be that the UK is forced, once again, to go cap-in-hand to the International Monetary Fund (IMF) to raise badly needed funds.

Either way, the UK is now firmly locked on the course of a prolonged period of austerity that will see further rises in unemployment; increased taxation; and severe cuts in public services.

… (MailOnline, 13/05/2009) – Darling’s forecast shattered as Bank of England warns economy will shrink by 4.5% this year

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  1. […] …Chancellor’s Forecasts Undermined By Latest GDP Figures Possibly related posts: (automatically generated)Taxpayer group responds to President Bush’s budget proposalPonzi victim losses tax deductibleCrunch tackle by No11Unemployment Jumps […]

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