It is official: austerity “works”

As many predicted the highly contractionary budget of the coalition government would in fact cause a contraction of the UK economy.  The revised numbers indicate that the UK economy contracted by 0.6 percent in the last quarter of 2010.  Which is pretty stunning as the bulk of the cuts have yet to come down. Indeed government spending was up 0.7%.

First quarter 2011 numbers will therefore be crucial as two consecutive quarters of negative growth will indicate a recession. The likely timing of government cuts will almost guarantee negative growth in QII 2011.

3 thoughts on “It is official: austerity “works”

  1. Most of that (0.5%) was due to the snow they had which pretty much shut down the entire country for weeks. From the BBC article:

    However the ONS said that the revision was not a dramatic one.

    “It’s not that much of a shock, this is a very small revision,” the organisation’s chief economist Joe Grice told BBC News.

    “The snow effect we think is still 0.5%. On the basis of that, the economy is still flattish at minus 0.1%. The overall picture is still a flattish underlying economy in the fourth quarter.”

  2. One week of snow blew a 0.5% decrease in quarterly GDP? Wow I guess I am too Canadian to understand.

    Last time I checked 0.7 – 0.5 = 0.2. My point was however that austerity had not really kicked in yet. Anyway, the proof will be in Q1, 2011’s pudding.

  3. Yes, they claimed that the snow (in winter, who could have guessed?) caused a 0.5% reduction — so the growth rate would have been… 0%! The trend is downwards, as I discuss here: Snow way to run an Economy.

    Given that the trend, even including the snow, is downwards it makes little sense to suggest that it is the source of the problem. Sure, -0.5% is worse that 0% but both are bad compared to 0.7% the previous quarter and (if memory serves) the 1.2% before that.

    So a predictable, and predicted, result of neo-liberal policies… snow doubt about it.

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