Analysis: Goodbye to the double-dip, but future prospects are not looking at all good
We ARE no longer in a double-dip recession. The quarter-on-quarter growth rate was 1 per cent, the fastest rate of growth since 2007. This news is consistent with the jobs market data which show surprisingly buoyant levels of employment and smaller-than-expected increases in unemployment.
There were some special factors in the third quarter. Two additional bank holidays were held in May and June to celebrate the Queen’s Diamond Jubilee. Compared with previous years, there were therefore fewer working days in the second quarter of 2012.
The GDP estimates were not adjusted to take account of these additional holidays. Hence the estimates for the second quarter were always going to be weak. Thus, the third quarter, which had the usual number of working days, looks relatively good by comparison. Much of the activity associated with the Olympics and Paralympics was allocated to the third quarter, when the events took place. This increased both spending and jobs, but was mainly focused in South-east England.
Nevertheless, even though we may have now emerged from the second dip, the portents are not especially good. Recovery from the recession is slower in the UK than in almost all other developed countries. Output is still 3.2 per cent below its level in 2008 Q1. For many families, this means lower real incomes, mostly because wages have stagnated while prices continue to rise. Although inflation is close to the Bank of England’s 2 per cent target, it is likely to accelerate again soon, driven on by gas and electricity charges and by the effects of drought and flooding on food prices.
Consumer demand is therefore unlikely to drive further growth, while the outlook for exports is deeply uncertain. The euro crisis lurches on. A shared, practical vision of a solution to the sovereign debt crises seems as distant now as it was six months ago. Meanwhile, the United States is approaching the “fiscal cliff” – when a number of past tax reductions and spending increases will be rescinded unless the new president acts.
The possibility of a “triple dip” for the UK economy cannot be ruled out.
• David Bell is professor of economics at Stirling University.
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