Economy "stuck in a rut"

Immediate release

The Office for National Statistics has confirmed that the UK economy grew by 0.3% in the first quarter of 2013. But with manufacturing and construction in decline, the recovery is being led by the service sector and there is little sign of economic rebalancing. IPPR analysis shows that this is the slowest recovery since records began.

Tony Dolphin, IPPR Chief Economist, said:

"While attention around the release of this growth number has naturally focused on whether or not there would be a triple-dip, we should not forget the bigger picture: the UK economy is stuck in a rut. Real GDP has increased by just 0.4% in total over the last two and a half years and it remains 2.6% below its peak level, reached five years ago in the first quarter of 2008. Normally, we would expect the economy to grow by around 12% over any five year period. The fact that it has contracted by 2.6% instead means almost 15% of potential output has been lost, along with the employment opportunities and tax revenues that would have accompanied it.

"Rather than change its fiscal policy, the government continues to rely on monetary measures to get the economy growing again, despite the evidence of the last few years suggesting that they are largely ineffectual, on their own. Much hope is being pinned on the arrival of Mark Carney as the new governor of the Bank of England in July, though little is said about what he might actually do. Even if he could cajole two more members of the Monetary Policy Committee into voting for an increase in the scale of the bank's quantitative easing programme, we have probably reached the point where additional QE is producing much-diminished returns."

Will Straw, IPPR Associate Director, said:

"All the growth was driven by services. The construction sector contracted and production grew at a tiny 0.03 percentage points. The manufacturing industries fell by 0.3% in Q1 2013, following a decrease of 1.4% in the previous quarter. Britain may have avoided a third recession in quick succession but the recovery is far from secured and the 'march of the makers' is yet to materialise and the North of England could still in recession."

Notes to Editors

IPPR's report - A path back to growth - for reforms to address long-standing weaknesses in the UK economy: underinvestment, vulnerability to external shocks, a poor export performance and persistent inequalities. The report is available from: http://bit.ly/IPPR9438

IPPR's report recommends:

1. An increase in the scale of quantitative easing
2. Fiscal measures to boost growth in the short-term combined with a reaffirmation of the plan to eliminate the deficit in the medium-term
3. Additional infrastructure spending
4. Measures to make household debt restructuring easier
5. Measures to keep the long-term unemployed in touch with the labour market
6. An active industrial policy

The report says Government ministers have called the business environment favourable and accused companies of whingeing about government policy when they should be investing their cash piles but, from a business perspective, the outlook is decidedly uncertain and this is a major deterrent to making long-term plans and spending money. The report argues that policy needs to be oriented towards reducing uncertainty.

IPPR's report, Investing for the future: Why we need a British Investment Bank, is available to download here.

The final report of IPPR North's Northern Economics Futures Commission is available here.

Contact

Richard Darlington, 07525 481 602, r.darlington@ippr.org

Tessa Evans, 07875 727 298, t.evans@ippr.org