Press Story

Reacting to the growth figures for quarter three, IPPR says that the UK slowdown is due to domestic policy and not the impact of the Eurozone crisis. The think tank also takes issue with Treasury sources that claim the UK has grown at the same rate as the US.

Writing on the Left Foot Forward blog, IPPR Chief Economist, Tony Dolphin argues:

"In the last few weeks, the Prime Minister and the Chancellor have been keen to blame all the UK's economic woes on the developments in the euro zone. The unfortunate reality is that we are only just beginning to see its effect here. The near stagnation of economic activity in the UK began in the fourth quarter of last year - well before the euro zone crisis reaching boiling point.

"The slowdown in the UK is the result of a mix of domestic factors, particularly the Chancellor's tough fiscal stance (which has knocked confidence in the private sector about future levels of demand), and global factors such as higher oil and food prices.

"In terms of employment, a recession now looks inevitable. The International Labour Office warned yesterday that the world economy was on the verge of a new and deeper jobs recession. In the latest three months (to August), employment in the UK was 178,000 lower than in the previous three months. With the outlook for output growth deteriorating, it is hard to see how the UK can avoid falls in employment in the third and fourth quarters of this year - a jobs recession."

Writing on the New Statesman blog, IPPR Associate Director, Will Straw argues:

"The Treasury tried to put a positive spin on the release by claiming that it puts the UK on a par with the US but the truth is a little more complicated. Shortly after the figures were release, ITV Business Editor, tweeted, "Treasury sources say UK grown at same rate as US so far in 2011."

"For this to be true, it would mean that the Treasury are conveniently ignoring the effects of last winter's snow which chopped 0.5 per cent off GDP. US figures out last week showed that the annualised rate for the third quarter was 2.5 per cent. Comparing like with like, this means that the US economy grew by 1.6 per cent over the last year."

Notes to Editors:

The UK economy grew by 0.5% in the third quarter of 2011 according to preliminary real GDP figures released by the Office for National Statistics today. Over the last year output was up 0.5% - a significant slowdown from the 2.6% growth recorded in the previous four quarters. 0.5% is the lowest annual growth rate recorded in the UK since the final quarter of 2009.

In the last four quarters growth has been -0.5%, +0.4%, +0.1% and +0.5%.

But the quarterly pattern has been distorted by last December's bad weather, the extra bank holiday in April and the effect of the Japanese tsunami on global supply lines. Our best guess is that the underlying growth picture over the last four quarters is 0.0%, -0.1%, +0.5%, +0.1%.

One consequence of today's data is that the Office for Budget Responsibility (OBR) will have to make substantial cuts to its growth forecast for 2011 when it publishes new projections alongside the Autumn Statement on 29 November. The OBR has already cuts its forecast from 2.3% at the time of last June's budget, to 1.7% in March. Its new forecast is likely to be about 1.0%.

The OBR will also be revising down its forecast for 2012 (currently 2.5%) because the outlook for the next few months remains grim. Household and business confidence - the best short-term indicators of economic activity - remain at very depressed levels. Just today the latest survey of purchasing managers showed that the manufacturing sector contracted in October at its fastest pace since June 2009, when the UK was still in recession. Meanwhile, the continuing crisis in the euro zone, which the OECD now expects to grow by just 0.3% in 2012, will be a drag on UK exports.

Contacts

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

Tim Finch, 07595 920899, t.finch@ippr.org