Analysis: Second dip raises doubts on austerity

By JOHN MCLAREN
Published on 26/07/2012 00:00

THE latest UK GDP figures are very disappointing. The trend is moving from roughly stagnant to signs of a real double dip. This is the biggest fall since the first quarter of 2009, when we were at the height of the crisis, and it is the third successive fall.

The main source of the decline was in construction, where output has fallen by over 10 per cent in the last two quarters. From the second half of 2009 to the second half of 2010, UK construction output grew by more than 10 per cent.

Few in the industry believed these figures, not least because, over the same period, official figures showed employment in the sector falling.

Manufacturing is proving a disappointing source of potential growth at UK level, with output down over 3 per cent from a year ago. This may be connected with poor sales in the euro area, but it is noticeable that Scottish manufacturing output has risen by 1 per cent over a similar period.

However, this bad news is only an initial estimate, with much of the hard information for June still to come, including the impact of the Jubilee, although why this should bias any negative impacts on to a few sectors is unclear.

Scotland has outperformed the UK over the last two quarters and it must be hoped that this will continue. But the signs are not great, as the construction sector has also been the major source of recent Scottish weakness.

For both countries, the dilemma over why the labour market has been improving, while output falls, remains.

The political and economic debate will quickly move back to the issue of whether we need continuing austerity. Only last week the IMF broadly approved of the UK’s budgetary stance, with the proviso that “in the case of a major shock to the recovery, fiscal policies may need to be recalibrated”.

If the UK is not already at that point, then it must now be at least nearer.

• Professor John McLaren, Centre for Public Policy for Regions, the University of Glasgow.