Britain's Recession Finally Ends, Sort of

Britain's Office for National Statistics announced yesterday that the British economy is no longer in recession. GDP grew an underwhelming 0.1% in the last quarter of 2009. Declaring the Great Recession at an end hinges on two things: whether the figure just announced gets revised downward, and whether first quarter 2010 sees any growth. Either way, it's far too soon to cheer.

For all of 2009, the UK's economy shrank 4.8%. To put that into context, it was worse than the Thatcher years of scorched earth warfare against the unions. It was worse than the 1970s which saw both the "Winter of Discontent" and the "3-day work week." Writing in The Times, Gráinne Gilmore and Robert Lindsay said, "In 2009 the economy fell by 4.8 per cent, the fastest pace of decline in a single year for 88 years, and more than in any other 12-month period since the Great Depression of the 1930s." The nation had been in recession for six consecutive quarters, with the economy shrinking 6% during that time.

Despite the worst being over, things aren't all that good. The country is running a £174 billion budget deficit, and it has 2.5 million people out of work. The pound is tanking, and the UK has relatively high inflation. The UK was the first of the G-7 countries to see its GDP start shrinking, and it is the last to see it start growing.

Looking ahead to the immediate future, the IMF predicts Britain will continue to lag its partners. The 1.3% expected GDP growth in the UK is less than half that of the Americans' 2.7%. Germany should grow by 1.5% and France by 1.4%. One ought to also consider whether the British figure might be lowered given the low GDP growth figure.

Blogging at The Independent Sean O'Grady put the situation into context quite accurately, if depressingly. In a posting called "We're still the sick man of Europe," he wrote, "Medium term, it means sharply reduced living standards for many people with higher taxes, worsening public services (whatever the politicians might claim) and higher interest rates and mortgages. If the cake isn't growing it also means more fights to get a bigger slice - so more strikes and social tensions. This year the country will be faced with a combination of fairly high inflation - it jumped last month, thanks to higher oil prices and the weak pound - and stagnating production. There's a word for that - stagflation, an ugly word for an ugly phenomenon - and last on everyone's lips in the 1970s."

It is still too early to declare that stagflation is here, but that it is even a consideration is a testament to just how far the country has to go.

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