If British chancellor George Osborne wasn’t already feeling the pressure ahead of next week’s budget, then he certainly will be after yesterday’s truly dreadful manufacturing data.
Output in manufacturing, which accounts for about 10 per cent of the British economy, fell at its fastest pace in January since June, wiping out the gains of the previous month.
Between January and December it was down by 1.5 per cent and by double that in the 12 months to January. The wider measure of industrial production, meanwhile, slumped to a near 21-year low, sliding to its lowest level since May 1992.
Economists had expected both measures to be broadly stable, despite the impact of the snow in January, and the data sent sterling sliding to a new 2½-year low on the foreign exchanges.
“This is the penultimate nail in the coffin in terms of triple-dip – it’s pretty much game over now,” says economist Alan Clarke at Scotiabank.
There are some economists who still think Britain may avoid sliding into a triple-dip recession this month, but their ranks are dwindling, and they acknowledge that it would take a pretty heroic performance from the services sector to dodge the downturn.
Pressure
Piling on the pressure, the National Institute of Economic and Social Research, an independent think tank, released its latest estimate for the UK economy yesterday. It forecast a decline of 0.1 per cent in GDP for the three months to February. It also revised its figure for the three months to January to minus 0.2 per cent, having previously estimated output at flat.
The UK economy shrank by 0.3 per cent in the final quarter of 2012 and contraction in the first quarter of 2013, which would mark a technical return to recession, is “an increasingly close-run call”, according to the institute’s Simon Kirby.
A triple-dip recession would be unprecedented for Britain, hence the huge focus on it by politicians, economists and the media. But, as the institute pointed out yesterday, our obsession with it tends to overshadow the far more worrying fact that the UK economy has in effect flatlined for the past two years and could well be heading for a third year of zero growth in 2013. That renders the debate over triple dip fairly academic – even if we do manage to avoid it, there is little reason for celebration.
It is against that grim background that Osborne delivers his fourth budget in Westminster a week from today. He is under mounting pressure to deliver some sort of stimulus to get the economy moving, but his options are limited. There can be no tax cuts or spending splurge to dig Britain out of its economic malaise.
Attention is turning to the government’s Funding for Lending Scheme (FLS), which seeks to encourage banks to lend in an effort to kickstart growth. FLS has failed to live up to expectations, particularly in small-business lending, and is due to be souped up.
The phrase being used in Westminster is “put on steroids”, with the scheme likely to be extended beyond 2013 and skewed towards small-business lending rather than homebuyers. This could see the scheme split in two, with banks that are shrinking their legacy mortgage books to be allowed to take advantage of the cheap money to lend on to businesses.
Osborne is expected to detail plans to boost lending in next week’s budget. No chancellor relishes having to deliver a budget in times of recession and the constant flow of grim economic news has made Osborne’s job even tougher in recent weeks. He could probably do with a dose of steroids himself as he stands up to face the House of Commons.
Bubbles burst
Meanwhile, some of the fizz has gone out of Britain's inflation basket, as government statisticians who calculate the nation's cost of living decided to remove champagne sold in bars and restaurants from the index after falling sales in the aftermath of the financial crisis.
The annual rejig to the basket to reflect changes in lifestyle and shopping habits sees champagne replaced by cheaper white rum, staple of the mojito cocktail and popular with young people. Champagne sold by supermarkets stays in, however, as people choose to celebrate at home rather than pay restaurant prices.
Other changes include the arrival of ebooks, reflecting the growing popularity of Kindles. In food, “superfood” blueberries are in, as are packaged vegetables for stirfries, continental sliced meats and spreadable butter. Out of the basket are desserts bought in staff canteens and unprepared lettuces.
Fiona Walsh writes for the Guardian newspaper in London