That GDP number – some quick thoughts
The quickest of quick thoughts.
– The -0.5% number is horrible, even with the snow it suggests a lackluster performance in Q4 with no momentum going into the cuts.
– The full year figure of 1.7% has missed the OBR’s 2010 forecast of 1.8%, made only 8 weeks ago. Suspect 2011 and 2012 will now be revised down.
– Manufacturing is doing well but it only employs 2.5m people, not enough to generate growth and jobs for whole economy.
– Threats to manufacturing next year include the Eurocrisis (biggest export market), higher commodity prices and continued difficulties with financing.
– We’d expect some of the demand lost in Q4 because of bad weather to come through into Q1 2011, but hit to confidence from this bad news plus VAT rise may constrain that.
– This was a surprise but maybe it shouldn’t have been – retail sales in December were awful (worst drop since 1988), unemployment was rising in November and Markitt reckon the service sector (crucial to the UK) was stagnating in December.
– Cutting starting in April strikes me as crazy. The Fiscal Responsibility Act 2009, which set out Darling’s 4 year plan, allowed for the pace of deficit reduction to be slowed if the economy did badly. Strongly suspect Labour in office would be rethinking tough cuts in 2011 at this point.
– We’ll obviously get revisions next month but unlikely to make this number positive
– Going into 2011 we have rising unemployment, record youth unemployment, high inflation and a contracting economy. This isn’t looking great.