by Stephen Tall on April 25, 2012
Nick Clegg spoke this morning to the Institute of Directors, shortly after the announcement that the Office of National Statistics estimates that the economy contracted by 0.2% in the first three months of 2012 — a second quarter of shrinkage that officially means the UK is once again in recession. Here’s what he had to say:
As you may have heard, the first set of GDP figures for this year have just been released. And so, if I may, I would like to start by addressing what is disappointing news. The ONS’s preliminary estimate for Q1 GDP has shown a fall of 0.2%.
Many people, many of you, will now be asking what this means. I asked myself the same thing when I heard the figures too.
To answer that question, we need to step back for a moment. Step away from the clamour for panicked reactions, the inevitable calls for the government to lurch this way or that, to ask ourselves, quite simply, are the basic building blocks of our strategy right?
Pulling the country back from the brink by repairing the public finances.
Reforming our financial system to protect the taxpayer from future crises.
Rebalancing our economy away from its overreliance on one industry, financial services, in one city, London, so that growth is spread and prosperity shared.
These are not overnight projects.
We have undergone a profound trauma in our economy, the depth and breadth of which we are only just beginning to grasp.
By 2016 our economy is forecast to be 11% smaller than it would have been had the 2008 banking crisis not happened.
We’ve witnessed an unprecedented combination of events: financial collapse; an overleveraged housing market; staggering levels of public and private debt. So fixing the damage takes time and commitment.
Our task has been nothing less than to rescue, repair and reform the British economy as challenges continue to confront our major trading partner – the Eurozone. So there are no short cuts.
And we have to remember where we would have been had we not taken these difficult decisions.
Because of our action on the deficit we have kept the markets at bay while our neighbours have been picked off one by one. We’ve kept interest rates at record lows. Because we have stuck to our plan, the UK – the country which had the biggest budget deficit in any advanced economy, bigger than Greece, Portugal, Spain – will, by the end of this Parliament, have a deficit lower than the G7 average.
So, yes, this morning many people will have questions about what these figures means for the UK. But our answers are the right ones to repair the damage done.
Not easy, but right.
Tim Leunig, chief economist of liberal think-tank Centre Forum, was asked for his verdict on The Guardian’s Reality Check blog whether the eurozone crisis has caused the double-dip recession. Here’s what he said:
There’s very little you can say about that either way unless the ONS says that exports have collapsed. The construction industry is not a eurozone issue. If the eurozone had done better other sectors might have grown. If it’s construction it’s not really the austerity measures either – it’s not teachers losing jobs.
But it could be either indirectly – people not building extensions because they are suffering from their own exports to the eurozone falling, or because they lost their public sector job. But you can’t immediately point a finger either way and say it’s that.
It’s important to remember that the initial British GDP quarterly figures are hopelessly unreliable, they are quick, they involve guesswork. The Bank of England is very sceptical. Whether it’s plus 0.1 or minus 0.1 the economy is in the doldrums. Since the start of the recession Canada has got back to its previous peak, so has Germany and the US. They are all richer than they were. France is back to where it was. Japan’s is closer. Only Italy is worse. Within the G7 only Italy is doing worse than us. I mean heck. It’s not where you want to be.
The causes are a known unknown. What’s interesting is how we can get out of the problem. If you see the doctor and ask why you got cancer it’s not really relevant. We just want a cure. It’s the same with this. What we care about now is prognosis what can we do to get out of this. This isn’t a case of Ed Balls or George Osborne, plan A or plan B. There are lots of different historical precedences we can look at to get out of this. But it needs a change in course. You can say it’s the lack of a growth strategy that’s working. The government has a growth strategy. It isn’t working. The government believed austerity would reassure the economy. That’s not the reality.