Green shoots revisited

Posted: September 24, 2012 in UK Economy
Tags: , , , ,

The search for green shoots continues.

Last week we said that evidence of a UK recovery is mounting: industrial production saw its biggest jump in 25 years in July, numbers employed in the three months to July rose 236,000, the OECD predicted a pick-up for the UK next year, and the CEBR forecast that for the first time since 2009, wages will rise at a faster pace than inflation in 2013.

It is not hard to be cynical. Sure employment was up, but much of the rise was down to an increase in part-time workers. The industrial production surge may have been down to no more than making up for lost production the month before because of the Jubilee celebrations. As for what the forecasters say, never forget the words of JK Galbraith: “The only function of economic forecasting is to make astrology look respectable.”

But now Mervyn King has joined the bull set. In an interview on Channel Four, he said: “I think the next quarter will probably be up. I think we’re beginning to see a few signs now of a slow recovery, but it will be a slow recovery.”

So it’s parade of promising news. But what is that? Oh dear, it’s rain.

Not so long ago, many top economists laughed off the prospects of the UK falling into another recession, not because they were especially positive, but, they argued, because output was already so low that it seemed unlikely it could contract further.

The truth is that right now, the UK’s output is around 4 per cent below peak. This is the longest downturn ever recorded. It will surely be several years before the UK’s output is 4 per cent higher than present. We are now around four and half years into the downturn, perhaps a touch longer.  A lost decade looks like a real danger.

©2012 Investment and Business News.

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