GDP falls steeply by 1.5%

With today’s figures indicating that the Gross Domestic Product fell by 1.5% over the last three months coupled with the previous quarter’s drop of 0.6% meant that the UK is finally officially in recession after two quarters of negative growth.

Here is the breakdown

• Construction output – down by 1.1 per cent
• Total production output – down by 3.9 per cent
  • Manufacturing output – down 4.6 per cent compared with a 1.6 per cent decrease in the previous quarter. 
  • Mining and quarrying – down1.6 per cent 
  • Electricity, gas and water output – down 0.2 per cent
• Services output – down 1.0 per cent 
• Distribution, hotels and restaurants : down 2.4 per cent,
• Transport, storage and communication : down 2.0 per cent
• Business services and finance : down 0.5 per cent
• Government and other services output : down 0.5 per cent,
• Agriculture, forestry and fishing output : up 0.1 per cent 

It is difficult to see anything trending back up in the near term except perhaps government output as public spending is increased. Inevitably the private sector is going to suffer most contraction in trying to survive the credit crunch.

Economists do not expect recovery to start until 2010

Most economists expect the recession to last a further year at least, as it will take some time for the government’s measures to take effect.

Graeme Leach, chief economist at the Institute of Directors

We are well into the financial crisis but the economic crisis is only just beginning.

John Cridland, CBI Deputy Director-General

Looking ahead, we hope the impact of interest rate cuts, falling inflation, the fiscal stimulus and the Government’s recent measures to kick-start lending will have a stabilising effect later this year.

David Kern, chief economist at the British Chambers of Commerce

While the short-term outlook is dire, it is important not to drift into excessive despondency. The Government and MPC still have important weapons at their disposal, which they will undoubtedly deploy. The huge stimulus package that the new Obama administration plans to introduce could have beneficial global consequences.

 
So there is a view that the government is doing the right things to mitigate the length and depth of the recession.

Gordon Brown needs to apologise

The best that Gordon Brown can hope for, is to persuade us in 2010, that his good financial management meant we only had a recession whereas under a Conservative Government it would have been a depression. It is a hard sell and unlikely to work. Unless of course, he fesses up to having made some mistakes with public spending and apologises for that ridiculous ‘We will not return to the old boom and bust’ statement on 21st March 2007.

The other thing he could do is reach out to the Conservatives (Cameron and Clarke) and the Liberal Democrats (Clegg and Cable) to get cross party support for decisions that will impact the country for next three or four parliaments. Obama is doing likewise with the Republicans in the USA. Brown should follow his lead.

In response to market conditions Barclays shed another 2100 jobs today

The economic recession just got a bit more real for me, as my job was one of the ones to go as Barclays Global Investors reigned back their development activities in the UK. A couple of weeks ago I had been sure my job was safe but recent interactions at work meant that on the day itself it did not come as a surprise.

After some soul-searching, self recriminations and reflection, I really feel quite good about it. I have been given an opportunity to develop my on-line business ideas and expand my knowledge of internet marketing.

For the last few years my income has been almost exclusively all in the ‘E’ sector (employee); now is the time to start trying in earnest to replace it with ‘S’ (self-employed), ‘B’ (business) and I (investor) streams.

I have set myself a ’90 Day Challenge’ to put myself on a path to replacing my income within 12 months.

The British Retail Consortium’s recent survey revealed Christmas 2008 as the worst Christmas ever with a fall of 3.3% in like for like sales and 1.4% in total sales compared to 2007.

See the full report.

However, there were a few notes of encouragement in some sectors: internet sales were 30% up on last year and low costs retailer such as Aldi and Poundland saw 25% growth.

Evidence of the recession hitting hard in the US was seen through the latest unemployment figures which show the biggest loss in jobs since the end of the Second World War, some 2.6 million jobs in 2008

Obama’s response is a Keynesian one: operating contrary to the downward market; the new US government will borrow and invest in the infrastructure to limit unemployment, welfare payments and try and create real growth in the economy. The other side of this approach is the need to reduce public spending, repay government debt through a higher tax income through the good years.

In the in the 1990s in the UK Gordon Brown as Chancellor started off on this route by reducing debt as a percentage of national income from 45% down to 40% with the intention of reducing the level to 36.5% based on Gordon’s sustainable investment rule. As the table below shows below he allowed debt to grow in now what looks like the good years of 2003 through 2006 when he should have been retaining the level of UK debt well under 40%

1997 : 413,2 £ billion, i. e. 49,8 % of GDP (ONS)
1998 : 410,2 £ billion, i. e. 46,7 % of GDP (ONS)
1999 : 405,7 £ billion, i. e. 43,7 % of GDP (ONS)
2000 : 400,6 £ billion, i. e. 41,0 % of GDP (ONS)
2001 : 385,5 £ billion, i. e. 37,7 % of GDP (ONS)
2002 : 402,9 £ billion, i. e. 37,5 % of GDP (ONS)
2003 : 441,1 £ billion, i. e. 38,7 % of GDP (ONS)
2004 : 487,9 £ billion, i. e. 40,4 % of GDP (ONS)
2005 : 529,4 £ billion, i. e. 42,1 % of GDP (ONS)
2006 : 573,3 £ billion, i. e. 43,1 % of GDP (ONS)
2007 : 618,8 £ billion, i. e. 43,8 % of GDP (ONS)

Source: http://cluaran.free.fr/debt.html

Now in the depth of recession the UK has depleted coffers when we need to spend our way out of the recession. The additional borrowing or printing of sterling that may ensue will result in GBP staying at a lower level, below or around the level of the Euro. Transition to the Euro in the UK would be so much easier at parity however the UK does not look anywhere near meeting the 5 economic tests

This evening, I found myself at Broadgate Circle, drinking champagne at the bridge of the boat-like, Corney and Barrow, overlooking the ice skating rink, safe from the icy winds in the warmth of the bar. It was a New Year’s drinks party with some colleagues and recent ex collegaues.

I was reminded of the scene of the band playing on the deck of the Titanic as the lifeboats were manned. The talk was not of jobs or markets (or icebergs) but of iPods, HDTVs, digitals cameras, holidays in warmer climes and new online businesses. The only recognition of the state of the current economic hardships was that we were drinking the cheapest champagne on offer, a Laurent Perrier Non Vintage at £46.96 a bottle (only £23.95 at anybooze.com. Well, at least we were doing our bit for the economy, spreading the wealth around

As I left, after a couple of hours of amiable chat, I drew my scarf more tightly around my neck. It is going to be a long cold winter.

Today saw Waterford Wedgwood call in the administrators, Deloitte. Wedgwood is a traditional name in fine bone china dating back to 1759. Waterford Crystal acquired Wedgwood in 1986 and then Royal Doulton in 2005. I own a number of Royal Doulton ladies.

 

On my wedding I was given some beautiful Waterford Crystal glasses. I expect that these famous Irish and UK brands will be acquired, and the bulk of remaining 2700 jobs in Eire and the UK will be relocated further east leaving only some management and marketing functions on home turf.

Even though the company has transferred 75% of it operations overseas to Indonesia and Eastern Europe this was still not enough to escape the downturn in sales of its luxury product.