Chris Donald: Getting the UK economy back on track won’t be easy

Published on 04/06/2012 00:00

Those who predicted the double-dip recession would turn out not to have happened are looking a little silly. Last month, the Office for National Statistics updated its estimate of GDP in the last quarter and it’s even smaller than it originally said. The economy actually shrank by 0.3 per cent in the last quarter, not 0.2 per cent.

When you consider the economy is more than 4 per cent smaller than it was in early 2008, a 0.1 per cent change perhaps doesn’t seem that big. But nor is it trivial. Forecasters have pencilled in growth of about 0.8 per cent this year, followed by a jump to 2 per cent next year, yet the UK economy has been bumping along the bottom for more than a year and is clearly still struggling to gain momentum.

There are also fears that output will fall again in the current, second, quarter because of the extra bank holiday for the Queen’s Diamond Jubilee.

Britain is trapped in the longest economic downturn for a century, eclipsing even the Great Depression of the 1930s, a depressing thought indeed.

The austerity measures that the UK government announced in 2010 have helped slow economic growth. The Chancellor of the Exchequer must look again to attempt to figure out how to implement austerity measures without completely suppressing consumer spending.

Of course, the issues the UK economy is fighting are not just home-based. The economy is finding it hard to return to growth in the face of serious domestic and European economic difficulties.

With a great deal of uncertainty, and potentially bad news, from the eurozone still to come, we face a challenge to get recovery back on track.

If Greece exits the eurozone, consumer confidence and bank lending will probably fall as people wait to see what will happen next.

Hopes of a modest, sustainable recovery developing during the second half of the year could be scuppered by events in Greece, and businesses could well hold back on investment due to heightened uncertainty.

• Chris Donald is managing director of Innovate Financial Services.