Figures released on Wednesday by the Office of National Statistics show that the UK economy contracted by 0.7% between April and June. Thus the economy remains in economic recession where it has been for the last two quarters. This situation has been described as the worst double dip recession in 50 years. The GDP figures show a very sharp drop in the construction sector, possibly as a result of reduced public spending on capital projects, a lack of confidence by the housing sector and reluctance by individuals to undertake home improvements in the current situation. However there were also smaller drops in relation to manufacturing industry and services.
But does this really matter to ordinary people? Yes, of course, it does. Growth in economic output is what fuels higher living standards, new jobs and additional government spending on public services like schools, hospitals and roads. A contracting economy will have the opposite effect of damaging living standards, increasing unemployment and continuing cuts in public services.
These GDP figures are, of course, aggregate figures for the UK as a whole. What they disguise is the impact across different parts of the country. For example, the business and finance sector (which is largely based in the South East) showed a slight increase in output and this suggests that the impact of the economic contraction is greater in other parts of the UK such as Wales, the North East, and the Midlands etc.
One thing is certain that this is a severe and embarrassing blow for the government and will increase tensions between the coalition partners. It will also impact hugely on business and consumer confidence and could lead to yet more downward pressure on economic output. Frighteningly, this situation would be made significantly worse by a break-up of the eurozone.
The government just has to get a grip and stop the drift in economic policy that has been taking place since the budget. What might it do:
• Firstly, stop messing about with peripheral issues like gay marriage and House of Lords Reform and focus on the core issues of economic growth and jobs. That will convince the electorate that they are serious and focussed on the main issues not jumping around like a butterfly.
• Secondly, it has to do something about business and consumer confidence by trying to create some degree of macro-economic stability. One approach might be to stop repeated rounds of public expenditure cuts which are just stoking up fears among six million employees in the public sector (the vast majority of whom won't lose their jobs but fear they might and, therefore, act accordingly) and businesses who are major suppliers to the public sector.
• Thirdly, try and be a bit more sophisticated and less crude when cutting public spending. Try and make cuts in areas where the economic damage will be limited. Cutting regional economic development in the current circumstances is suicidal. At the same time, stop trying to pretend that they are not making cuts when they are. I am always amused, when there is a media report about some form of cuts taking place in public services, that a Government Minister pops up to say something like that it isn't really a cut and they are actually spending more in this area.
• Fourthly, get away from focussing purely on a national headline figure for GDP. It won't do a lot of good for the bulk of the country if all the economic growth achieved takes place in the City of London.
In 1936, in the midst of economic depression, the former King Edward VIII was reported to have said "something must be done". It seems like that is the case today.
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