A spot of bad weather or a climatic change?
Today, to great surprise, the Office for National Statistics announced that the British economy contracted by 0.5% in last quarter of 2010.
It was assumed by most analysts that economic growth would have remained largely flat, but the dramatic fall, given the prevailing economic winds, has led to a resurgent view that the UK may suffer a double-dip recession.
Clearly, December’s bad weather had an effect and reduced consumer spending. But with VAT increasing from 17.5 to 20% in January, inflation hitting 3.7% in December and likely to rise to 5% in 2011, unemployment rising and now at 2.5m, and with the full effects of central and local government cost cutting measures likely to be felt in 2011, prospects for growth seem somewhat closer to Dorothy’s rainbow than over here at UK plc.
Nonetheless, the Chancellor was defiant in the face of the gloomy GDP figures and indicated that he would not allow his plans to be “blown off course by bad weather“.
But a prudent chancellor should be more circumspect and adjust tack accordingly when stormy weather clearly lies ahead. Hopefully, in 2011, Mr Osborne will be just that, as sustained economic growth is the only way out of our present economic mire.