Double dip no longer
George Osborne may have a tough lot as Chancellor, but he can at least count himself luckier than his Conservative predecessors from the 90s. Like him, they faced a double dip recession that was originally reported at the time, but was revised away later. Unlike him, they had to wait until they were out of office until the official figures eventually reflected the far-more-benign reality.
The Office for National Statistics’ announcement this morning, that rather than falling by 0.1% in the first quarter of last year, the economy instead flatlined,* wasn’t exactly a surprise. We at Sky News had been reporting that this was likely since early this year, when the ONS first revised away most of the contraction that quarter.
Nor does it change the overall picture: that the economy has suffered a major recession, and has struggled to recoup much growth since then. In fact, in pure economic terms, the “new” news today is, on balance, more bad than good: the initial collapse in economic growth was deeper than previously thought; the UK economy is therefore 4% shy of its pre-crisis peak rather than the 2.5% deficit previously reported; household disposable income looks very weak, even now, falling by 1.7% in the first quarter of this year – the lowest since 1987.
However, there’s no getting away from how politically valuable today’s news is for the Chancellor. It underlines that much of the worst economic suffering over the past five years happened in 2008/09, when Labour was still in power. There was, officially, no recession during his tenancy in office. And it looks rather likely, looking at the unofficial surveys of economic activity, that the good news will continue in the coming quarters.
However, the feelgood factor isn’t always synchronised with GDP movements. As John Major learned to his cost, it took a good five years from the 1992 recession for economic sentiment to improve, by which stage it was too late to secure his re-election. This was a deeper recession than in the early 1990s – indeed, five years after that recession the UK economy was about 10% bigger than the pre-crisis peak, rather than, as now, being 4% smaller.
Which is why the Chancellor is doing everything he can to try to generate a bit more growth. The infrastructure spending unveiled today is one part of that. The controversial Help to Buy scheme is another.
The big question, from Mr Osborne’s perspective, is whether either of them can promote a genuine improvement in time for the election.
Finally, is today’s revision an argument in favour of changing the way we officially classify recessions? It’s a British convention (shared in many countries) that the definition of a recession is two successive quarters of GDP contraction. But there is no fundamental economic logic to this. In the United States, a recession is officially only called when a committee of the National Bureau of Economic Research decides it constitutes one; but this often only happens years after the fact.
Some would argue that this system is a more sane way of determining what does and doesn’t constitute a significant economic downturn. It would mean the economic news was arguably less timely; but on the other hand it would save us from the ups and downs of the economic news cycle we’ve experienced during this double dip that never was.