Ahead of Q2 GDPnext Tuesday I have a post on False Economy, noting how our economic prospects are worsening.
But it’s not just me and Chris noting this – yesterday’s Bank of England minutes were filled with gloom.
Whilst much attention has been focussed on the cuts in government spending, and the prospects for Osborne’s preferred drivers (investment and exports), the Bank notes the problems facing the consumer and crucial importance of the savings ratio. A point I have made in the past.
As the MPC say:
The outlook for activity in the medium term would depend in part upon the prospects for consumption and its major determinants. The level of consumption over the past year had been significantly weaker than the Committee had previously expected. Over the same period, households’ real post-tax disposable incomes had fallen by more – reflecting the impact of increased VAT, and higher energy and other commodity prices – and the household saving rate had declined by about 1.5 percentage points. It was possible that households adjusted their spending patterns only gradually, suggesting that the past decline in real incomes could continue to weigh on consumption growth for some time to come and that the saving rate would tend to rise. Alternatively, it was possible that households had already largely adjusted their spending in response to the past shock to their income, in which case there would be less upwards pressure on the saving rate in the future.
And we also now have the latest update from the Treasury of the views of independent forecasters – the chart below shows how the average 2011 growth forecast has changed over time.
It isn’t a pretty picture.
Forecasters now estimate growth in 2011 will be 1.3% and the trend is towards more downgrades.
Whilst attention is rightly on the potential calamity in the Eurozone and the prospect of a partial US default – our own economy is weakening before the disaster hits.