Tuesday, April 30, 2013

Britain’s Conservative Government Hails .3% Growth in the First Quarter

But – And It’s a Big But

Thanks to its idiotic fiscal policy Britain seemed headed into a third recession this year, but the first quarter economic results showed positive growth, and that has cheered the Conservative party that controls Britain and determines its economic policy.  The increase was only .3% over the previous quarter, or about 1.3% on an annual basis which is the way that growth is reported in the U. S.

Shoppers carry their purchases as they w
Shoppers in Oxford Street, London. Britain avoided falling into a triple-dip recession after its
 economy grew by 0.3% – thanks in large part to the service sector.
 Photograph: Andrew Cowie/AFP/Getty Images

Politically, though, the first quarter growth numbers mattered a lot. After a sticky couple of weeks that has included a second credit downgrade, a wigging from the International Monetary Fund and a setback for the labour market, George Osborne could ill afford Britain plunging into its first triple-dip recession.

The chancellor did not really care about the size of the increase in gross domestic product between January and March just so long as there was one. Equally, the days when the Treasury fretted about which bit of the economy the growth comes from are long gone. The new mantra is better unbalanced growth than no growth at all.

So what’s the problem?

The increase was small by historical standards, still leaves the level of output well below where it was when the recession began, and offered scant evidence of the rebalancing towards manufacturing and exports that is integral to the government's plan.
In economic terms, it does not matter that much whether the economy grew a bit or shrank a bit since the big picture is of a country still bumping along the bottom after a deep and prolonged downturn.

Other countries, such as the US and Germany, have recouped all the ground lost in the slump of 2008-09 and then some. Britain's output is still 2.6% below where it was when the recession began in early 2008 – a slower recovery than in the aftermath of the Great Recession of the 1930s.

Oh, that.  In Britain the service sector (read the London financial services sector) improved, but the rest of the economy, particularly the northern section of the country is still a basket case.  But Britain will not change direction, because being a Conservative means never, ever admitting you were wrong.

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