The latest figures from the Office of National Statistics (ONS) show that the British economy shrank by 0.5 per cent in the last quarter. GDP was 4.4 per cent below the first quarter of 2008; it was the same as in the first quarter of 2006; and it was 8 per cent below the trend line for the last two decades.
Chancellor George Osborne put the fall chiefly down to the snow. However, the ONS said that GDP growth would likely have been flat even without the bad weather. This fall occurred not just before fiscal tightening had seriously begun but when both short-term and long-term interest rates were already extremely low.
Inflation is rising because of the rising prices of imports (as a result of the depreciation of sterling in 2007 and 2008), the soaring prices of energy, and the rise in VAT. As the Governor of the Bank of England stated, “the three factors described – higher import and energy prices and taxes – have squeezed real take-home pay by around 12 per cent. Average real take-home pay normally rises as productivity increases – money wages normally rise faster than prices. But the opposite was true last year, so real wages fell sharply. And given the rise in VAT and other price rises this year, real wages are likely to fall again. As a result, in 2011 real wages are likely to be no higher than they were in 2005.”
The government claims that higher net exports and corporate investment will offset the contracting impact of its public spending cuts, falling real household disposable incomes, the highly likely further falls in house prices, and massive household indebtedness.
Meanwhile, December’s trade gap in goods was yet another new record – £9.2 billion, up from November’s £8.5 billion. These are the kinds of figures we used to see for a whole year, and a bad year at that. The overall deficit in goods and services was £4.8 billion, up from November’s £3.9 billion. Some City analysts blamed December’s snow, which somehow cut our exports while mysteriously assisting imports.
Public spending should be directed towards investing in British industry, especially in high-growth sectors like nuclear energy, electric cars and high-speed rail, and in R&D, science and technology.
We shouldn’t keep bailing out the predatory banks, which take our money and pay it to themselves in ever-huger bonuses and salaries. Labour sold the pass by not requiring the banks to guarantee that they would lend and that they would not pay absurd bonuses. The Labour government, with its PFIs, academy schools, tuition fees, marketising of the NHS, etc, paved the way for this savage ConDem government.