UK economy stalls: what will get the engine running?

Freezing weather in December brought economic growth to a standstill. But even in normal conditions, there are doubts about a private sector 'kickstart' to the recovery.

Was it ‘the wrong kind of snow’?

The famous excuse used by railway bosses to explain why the transport system ground to a halt several winters ago, seems to have been wheeled out by those who are currently in charge of the UK economy.

Statistics published this week showed that the last three months of 2010 actually saw a reduction in the amount of economic activity by British businesses. At minus 0.5 per cent, the figure does not yet show that we have fallen back into another recession. But it was a shock to both the government and the Bank of England, who had expected to see recovery continuing.

December was the coldest run-up to Christmas for a century, and the weather put the brakes on many industries; only manufacturing showed an increase in activity of 1.4 per cent. Every other sector shrank back, including services, which should account for three quarters of growth as a whole.

Even without the effects of the snow, output in the fourth quarter of last year would have been ‘showing a flattish picture’, said officials at the Office for National Statistics, who compile these figures every three months.

That means zero growth, so Britain is not climbing out of the 2008 recession as well as we thought.

Mervyn King, the governor of the Bank of England, warned that the standard of living of millions of Britons would suffer, as job losses and wage freezes depressed incomes while inflation continued to push up prices by as much as 4 or 5 per cent. Separate figures showed one in five graduates is now facing unemployment.

Off balance
In the House of Commons yesterday, party leaders clashed over the best way forward, and traded blame. Labour’s Ed Miliband, the opposition leader, said the government’s policy of drastic cuts to public spending was ‘hurting but it’s not working’.

But David Cameron, the prime minister, insisted he would not change course: ‘it will be choppy and it will be difficult, but the worst thing to do would be to ditch your plans on the basis of one quarter's figures.’

The government’s economic strategy depends on a balance between cuts to the public sector, which it says must be made to tackle our enormous deficit, with new jobs in a healthy private sector. But these figures show we may not yet be on the road to full recovery.

You Decide

  1. Trades union leaders are trying to organise strikes to protest against job losses and wage freezes. Is this the right response?
  2. Some people think the only ‘real’ jobs are in the private sector. Do you agree?

Activities

  1. Minus 0.5 per cent of growth sounds like very little: but what is the value of half of one per cent of the UK’s GDP in pounds? Research how Britain compares to other countries’ growth figures.
  2. Divide up like the House of Commons benches into a government and opposition team, with a leader of each, and hold your own Prime Minister’s Questions to debate the economic strategy. The opposition leader gets 6 chances to pin the PM down to a clear answer.

Some People Say...

“Without government interference, business would provide for all of society's needs.”

What do you think?

Q & A

Why did the cold weather affect business?
Transport problems made it difficult for many people to go to work, so some businesses couldn’t open for days. Frozen roads and closed airports made it difficult to move goods around. But parts of the economy that shouldn’t have been affected also performed badly.
What could help businesses recover now?
Richard Lambert, the outgoing head of the CBI employers’ organisation, warned that too much regulation and new policies like a cap on immigration, are holding companies back. He criticised plans to cut regional and local bodies that encourage development and investment.
Aren’t the politicians listening to business?
In a speech, Lambert said the coalition government was right to concentrate on cutting government overspending (although some economists agree with Labour’s idea of keeping government spending going to stimulate growth). But he said ministers were failing to set a clear growth plan.

Subjects

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