Small difference: Britain's third-quarter GDP

"But at some point, we knew households were going to save more in response to the recession. They always do. "

A quick glance at the article's quoted statistics does not suggest that savings have gone up. It merely suggests that the ratio of savings to income has gone up. Did I miss something?

Yes, look at those savings rising.

If we had a National Bank we could put our savings somewhere where they might be put to good use rebuilding our fractured economy instead of under the mattress or into one of the existing banks to help pay for their 'top people' bonus.

Savings ratio may have improved but no one suggests that large sectors of the population have paid down their excessive debt in a short space of time. Freud's aphorism applies to this blog and what is needed is a comprehensive review of where we are in the economy which includes the likely turn down of the public sector no matter which government is reigning next summer and the almost inevitable rise in inflation which will largely be uncompensated in pay - both private and public. Recession part two - 2nd q 2010!

Surely what is transpiring in 2009 is of little relevance to the big picture, once Quanttitative Easing stops in February combined with the VAT rise and various government schemes running out of money/coming to an end, we will go back into negative growth?

I am surprised that no economist has attempted to reverse engineer what our true GDP would look like if we had never entered into printing money, 99% of which ended up in government coffers and was splashed about through various initiatives by the Government.

Surely when (if) it comes to reversing the QE to correct the money supply, UKPLC will take a massive hit on growth?

Add to this the very real prospect of significant inflation for 2010, probably 4% for most of the year, and only upwards pressure, looks like thisLabour Government has left a timebomb to go off conveniently in the first 12 months of the next government (likely to be a conservative one)

I am very concerned we may be heading for a double dip recession, which is a very rare event and I assume not good news for regular joe public?

Why no mention of the DOWNGRADE to Q2 GDP? This entirely explains the "upwards" revsion to Q3. In fact we are no better off as a result of these figures - simply that some GDP fall was pre-July not post-July.

We are still mired in recession. And there will be no rapid rebound next year when QE stops, government spending falls as it must to stop a bond strike and the base rate rises as it too must at some point.

The debt is real.

#4 Anand - Great Comment - just what I was thinking.

Hopefully Cameron will have the majority and guts to sort this mess out but if he does expect Labour to be ahead in the polls massively this time next year.

Expect rising crime, massive unemployment and poverty - Brown and Blair's true legacy.

Eventually we shall come through this again but as ever a new smiling Tony Blair alike will arise promising utopia for all and we shall have forgotten where the Pied Piper led us last time.

The Social Conscience that bore the beast will be in heat again.

Gordon won't be pleased that people are saving more of their income, don't these people know that "Prudence" is to over borrow, over consume and not save a penny for tomorrow.

All suggestions of recovery were only reflections of the centre of the W shape this recession is taking (or should that be \/|__/?)

There are only some people who stand to gain from putting a positive spin on it - such as those who will profit on the market and those who would like to remain in power - but despite it seeming like the right thing to do (in order to foster a self-fulfilling prophecy) in reality it only serves to drag things out and trick the public into providing that profit by taking the losses on the other side of the market.

Stephanie, elsewhere on the BBC site, a report says:

"The Office for National Statistics said the upward revision to the third-quarter figures was down to an improvement in construction output. That was boosted by strong growth in public sector projects, while the decline in house building slowed."

So the "growth" isn't really growth but contraction. The apparent reduction in contraction is due to public spending to keep the building industry going. As the government doesn't actually have this money to spend, I assume it was borrowed from the banks - part of the money they have to spare now that they sold bonds back to the government in exchange for "magic" quantitive easing money.

Or something like that (I'm not an economagician, so I don't fully understand the all the tricks).

As someone requested above, could we get someone to analyse the situation and tell us the true picture. Surely, Stephanie, the BBC Economics experts could put together a balance-sheet style of programme that tells us the true state of finances before the next government tries to tackle it?

We hear throw-away references to the off-balance-sheet debts, the QE figures, the trillion-plus personal debt (with or without mortgages), and so on. We hear about GDP figures that are distorted by public sector "productivity." Can you, or someone with time and access to resources, try to digest the data and present it in meaningful terms?

I haven't had a full look at the figures for a while.
Two things struck me.

RPI and RPIX are on the march and getting steeper.
CPI isn't moving as much but we'll still hit the letter writing stage by the end of Q1 next year if it keeps moving the way it is.
All the pressure here seems to be on the upside to me.

The second is public sector wage growth being twice that of the private sector. Which I see was covered last week. From the outside it appears the public sector is in some kind of fantasy land at the moment. Not much in the way of job cuts and their wages are still rising nicely compared to others. I doubt they feel that way though. That the govt haven't tackled this yet is probably their worst piece of inaction.

Quote: This kind of retrenchment by families is what they mean when they talk about the "headwinds to growth" in the broader economy over the next year.

Normally Stephanie, yes. But when those extra savings (if there are any extra savings, and the numbers are not just an indicator of falling income as per Comment #1) become available next year, they will be eaten up many times over by the forthcoming post-election tax rises !

So whilst in ordinary times this might be a comfort, in these current times, it just means we'll be slightly less economically dead than we otherwise would have been.

This kind of retrenchment by families is what they mean when they talk about the "headwinds to growth" in the broader economy over the next year.

Erm, you're doing it again. Why is there this conflation of the terms "household" and "family" on the BBC and by the ConLab leaders ? "Hard working families" and other, to me, derogatory terms really don't take account of the very large minority of "households" in the UK that either through choice or circumstance are not in a man+woman+2.4 children+cat+dog shape. While it appeals to the chattering classes / Daily Mail reading population, it has the same intentional subliminal effect as talking about "greedy bankers" and "dishonest politicians". No one is expected to point out the implied link, are they ?

I am not saying this because I think there is some importance in the "pink pound" or whatever you may immediately imagine. I am a heterosexual male but I choose not to live in a family unit - and I am not the only one by any measure - and yet my general and (more importantly perhaps) my tax contribution to society is greater than many of those so-called "hard working families". So, howabout less bias Aunty Beeb ?

"we knew households were going to save more in response to the recession. They always do."

Ha! The contraction in household spending is the cause of the recession, not its effect... Classic Keynesian economics.

The real problem is currency manipulations by Far Eastern countries - China, India et al. These countries have built up with a massive glut of foriegn currency (pounds, dollars, euros) and thereby holding the value of their own currency at an artificially low level. Consequently, we cannot compete with them on price and hence develop a long standing trading deficit.

Narcissism of small differences? Stephanie 'Ron Burgundy' Flanders - 'When in Rome...'

BobRocket wrote:
If we had a National Bank we could put our savings somewhere where they might be put to good use rebuilding our fractured economy instead of under the mattress or into one of the existing banks to help pay for their 'top people' bonus.
---------------------------------------

I wholeheartedly agree with you! But where are the politicians and journalist who are actually going to spell it out: BRITAIN IS BEING HELD HOSTAGE BY PRIVATE BANKS!

#6 to quote 'Expect rising crime, massive unemployment and poverty - Brown and Blair's true legacy.'

Really? So what was Thatcher and Major's true legacy? they really put the UK in employment utopia didn't they?

The true answer is that the UK economy will not recover fully for an other 10-15 years, and until the Financial/Banking sectors are tightly scrutenized and regulated. Thats exactly how Australia avoided the collapse.

Wow.

0.1 %.

What a desperate scam it(BBC economics analysis) all is.

Looks like most of the population see the hard times continuing.

The political price for this folly is going to be enormous. No wonder the government is desparate for a sign of recovery at any price.

dvdvns ---- bang on

16. At 1:05pm on 22 Dec 2009, dvdvns wrote:
the UK economy will not recover fully for an other 10-15 years...
---------------------------------------------
In that case it never will as we seem to have a mini recession every 10 years or so.
Does the economy ever truly recover or just lurch from crisis to crisis in a time period longer than a parliament?
True growth would make the population (families or otherwise) better off in the long term and I am sure I read recently that earnings in real terms are nowhere near the best they have been in recent decades. Perhaps we have already achieved serfdom.

Another way of interpreting the graph is where the amount saved remains constant but the income decreases. This is closer to the truth, I suspect

I mistrust the figures that show a resurgence in saving.

The incentive to save has never been lower and if in these circumstances people are actually increasing their net savings it can only foretell further economic destruction in the near future.

People are reacting as though the economy is in a far worse position than the official figures tell us. The may mean that the official figures on the recession are a load of cods wallop (as I suspect) or that the savings figures overstate the actual savings (which is possible).

Whatever - savings are still far too low.

We will only find out once interest rates return to rational long term levels of 5 to 6 percent.

PS Fire Mervyn King - who regulated us into this disaster and is now intent on re-inflating the economic bubbles of house prices and equities - the man is an economic disaster for the Nation.

22

John from Hendon

paying off debt counts as saving for these purposes. With low interest rates loads of people are pverpaying their mortgage and getting their credit card debts down instead of spending it on tat they don't need.

This is clearly a good thing in many ways...except for GDP! Our economy is founded on people spending money -especially money they don't have - on tat they don't need.

''Freud used to talk about the "narcissism of small differences".''

And what pray is the error band on these stats. Bigger than the differences.

More intervention appears to have taken place in the UK than ever before recorded and the result is a flat line, whilst other economies pull away, however slowly.

The economy was being pushed along by some individuals borrowing ever huger amounts. Those borrowing like that have been culled. Hence the economy is not going anywhere in a hurry. The reality that the economy has been driven off a cliff, that there is no gap to jump will slowly dawn. Then the cuts have to be made. Those cuts will almost certainly exceed any growth unless we are very lucky. So the economy will decline further. The national debt will grow. Then somebody has to cut again and we will see the social agitation that is brewing in Greece with those carried on public spending beefing they do not want the chop. It makes no differnce who is in Number 10, although personally I would like to see the back of the current vain lot.

Take Browns bubble away from was actually year on year, year after year moderate growth and you had decline underneath. It has been there for at least 2 decades. Browns bubble has popped so we are back on the decline curve. Please what is difficult to understand about this. Economists in the 70s postulated 8 percent was the optimum unemployment rate at that time for an efficient economy. As unemployment data is now manipulated, as some unemployment is embedded in short hours working, we are now alomst certainly higher than 8 percent unemployment. In areas of London for example unemployment is 1 in 4 households. In fairly short order you can conclude that the economy is operating suboptimally with little prospect of it changing immediately.

You dont need all this spurious supposed data to one decimal place. Its baloney. People grasping at straws. When you have to open an economics comment with a reference to a psychologist, I am afraid it is time to go and see one.

Look at outcomes if growth is muted and restructuring has to proceed.

John_from_Hendon wrote:

"PS Fire Mervyn King - who regulated us into this disaster and is now intent on re-inflating the economic bubbles of house prices and equities - the man is an economic disaster for the Nation."

Hardly Merv's fault. His BOSS, Mr G Brown, gave him independance, but within a very strict remit. That remit was to keep inflation at no more than 2%. His BOSS, a Mr G Brown ALSO gave him the controlled framework through which he couod calculate inflation (CPI) which priot to our genious former Chancellor and present PM's implementation was always worked out to RPI which factored in House Prices.

The old adage of "don't shoot the messenger" springs to mind. If you think monetary policy was wonly from 1997 to present, blame G Brown, its his strong-arming that handcuffed Mervyn King's hands.

If RPI was left as the measure for inflation, interest rates would have been much higher, preventing an asset boom in the noughties which may well have prevented much of the present crisis.

As to reinflating us into a new bubble, I think you can again turn your finger to Mr G brown, who most definately pushed for the case of QE, its not a surprise 99% of printed money has been spent on government bonds/gilts, effectively the government has printed money, transferred it from BoE to HM treasury and spent it all to prop up their relection hopes.

Cynical...Moi? NEVER!

To Ms Flanders;

I’m a BBC licence fee payer, and I have made the following observation, and follow it with a request:

The financial industry has been regulated in the past by the following:
• The Bank of England.
• The Financial Services Authority
• The Financial Ombudsman
• The Treasury.
• The Basel ll Agreement.
• The European Union

Well that’s an awful lot of people doing an awful lot of regulating. And, we’ve ended up with the biggest financial catastrophe this country has ever known.

So it is not unreasonable to conclude that regulation doesn’t work.

All the evidence points to the fact that regulation doesn’t stop the boom – bust scenario, in fact it doesn’t even stop the more mundane ‘financial product’ mis-selling.

Remember endowment policies, personal equity plans, payment protection policies, equity release schemes, self certification, 100% + mortgages and not least private pensions.

So given all the regulation, many people have been mis-sold financial products, banks have collapsed, and last but by no means least the current boom – bust scenario will see many families lose their homes, with the misery and destitution that such brings.

What I think we need is a State Bank.

Unless we (the state) have the primary control of the creation of money, then we (the state), will be at the mercy of those who do.

I would be grateful if you Ms Flanders would feature the same in an article in the near future.

So the punters are getting their calculators out and trying to forecast the future of the economy.
That is hardly any comfort to the British people who can hardly leave this bankrupt country for warmer climates. No trains; no planes; no transport.
The economists are pouring over their figures, while most of Britain takes shelter from the cold.
This has all the makings of a 'Dickensian' Christmas!

When did Darling say that the UK would come out of recession? Q4 2009.
When did he say it? From the outset.
When did he say we would come out of recession in the second or third quarter 2009? He didn't.
This is a case of the media and commentators making a story to suit their world view and trying to involve the government in their games and blame them for not matching the positions of the commentators - almost all of whom are politically hostile to the government.
If anybody thinks things are bad here then you are living in a reverse cloud cuckoo land. Of course, I do speak from the comfort of still being employed - albeit without a pay rise this year. I have just come back from Ireland - technically out of recession but with a much more massive debt per capita than we are saddled with and very little sign of recovery, swingeing public sector cuts and a poor economic outlook for the foreseeable future. The taxi drivers at the airport are getting only 4 or 5 pick ups per day and are barely scraping a living. All benefits are facing massive cutbacks: including old age pensions - something that is not on the agenda here - until the turkeys vote for Christmas next year.

Stephanie

Today's press release from the ONS stated that "GDP remains 5.1 per cent lower than the third quarter of 2008".

So the GDP REMAINS 5.1& lower and there is no net adjustment to the annual GDP estimate.

Can you get this added to the BBC report which will otherwise mislead people to think that GDP has been revised upwards (or at least less downward).

Tyto alba wrote:

"...something that is not on the agenda here - until the turkeys vote for Christmas next year."

As if any government of any persuasion has a choice in these things. You are being very naieve if you think we wont be heading Irelands way in 2010. The Bond market will see to that. The government wont be able to raise the required £billions like it did this year, there is no apetite for UK soverign debt.

And as far as debt per capita in Ireland? We are much worse, just that creative accounting has kept more than a £Trillion off the balance sheet. We are collectively in debt to the tune of 300% GDP counting in the bank bailouts, PFI obligations, PSNB and Public Sector pension liabilities.

We have the highest structural budget deficit in the developed world and you think we have it easy? Wake up and smell the coffee.

Dempster wrote: What I think we need is a State Bank.
---------------------------

Dempster, do you know what the common between the following US presidents - Andrew Jackson, James A. Garfield, Abraham Lincoln and John F. Kennedy is?

I really do not understand the surprise in the increase in saving rate. It was not that long ago that the bankers and investment firms decided to announce that individual retirement and investment accounts had been reduced by about 30% due to a scheme that was destined to fail, with the assistance of the governments. The logical thing for individuals to do was to try to save some money again if they want to have any hope of retirement. Saving is the only option other than a lottery. Of course the governments haven't changed any of the regulations so the opprtunity for the banks and investment firms to repeat their unethical behaviors are still in place and surely they will steal again. Asia has a long and well documented history of bad governments founded on corruption so the people tend to invest in gold and jewels as a hedge against paper and now digital money disappearing. There is an old Chinese saying: Wholesale thieves start a bank.

No 28

Ireland will emerge stonger and better placed (to quote GB) than the UK because the harsh medicine it is taking now. Q1 2010 will give a better indication of where we stand - lets hope for the best. But don't delude yourself that cuts will only happen under the Tories.

Prior to this year there were a lot of households who had a minus net level of savings.
In short they owed more than they had.

However having defaulted on their debts and likely become destitute in the process, they are no longer counted.

As a consequence one could depict the growth in savings as follows:

In 2008
Households with a minus net level of savings = 25%
Households with a plus net level of savings = 75%


In 2009

Households now bankrupt (neither minus nor plus level of savings) = 5%

Households with a minus net level of savings = 20%
Households with a plus net level of savings = 75%
Overall rise in household saving = 5%

Everybody will make cuts in the public sector - and being in the private sector I see no reason why they should not share their fair share of the pain: but there is a difference between a bit of blood-letting to leech out the poison and severing the carotid artery: the preferred Tory medicine.
As for who is right: Brown and Darling have called it better than any economist or Tory politician so far. The PFI fraud has been around since the early 1990's and will continue - but Anand is making up figures to exaggerate support for his position.
The business I work for - which supports a people facing industry - is about to post its best ever second quarter results. I am pretty certain we are not alone. Even the CBI and the BCC are recognising that unemployment is not going to top 3 million (and before you say it: the government uses the ILO method to work out figures for unemployment not the Tories preferred, lower, claimant count method when they were in power) so clearly Anand everything is going to hell in a handcart.

Stephanie

Your reference to Freud is apposite. It is a sad reflection of the real state of the economy, that we are left to hope for statistical revisions to improve the actual picture. When they fail to materialise, or amount to 0.1%, they cannot fail but to disappoint.

This is especially the case when staring into the economic and financial abyss, which is potentially created by the ending of the emergency financial support package measures. The ending of VAT and stamp duty reductions, Quantitative Easing, Car Scrappage Schemes surely must suppress aggregate demand in 2010.

As mentioned in previous posts, the evolution of consumer spending over the festive period will be crucial. The retailers in the guise of the BRC normally release daily statistics on their sales at this time of year. This year there appears to have been deathly silence in the run up to Christmas.

The key piece of ONS data eagerly awaited is the Q4 GDP figures. These will define whether we may expect a strong rebound in 2010 or double dip recession; or worse still perish the thought have remained in recession in Q4. We should all have our proverbial pencils sharpened with our diaries set for large reminder alerts on the publication date for those figures.

The UK's financial sector has had a really strong final 3 quarters this year. The stock market has risen rapidly since its March nadir. The sector had huge amounts of cash available for bonuses. Car sales (new car registrations) rose dramatically under the scrappage scheme from c60K per month to between c100K and c120K during the height of its operation.

Rather than new gas boilers, a more innovative scheme would have been to create subsidy schemes for solar or photovoltaic panels, water heaters and household wind powered electricity generators for consumers. This would promote overall demand, increase consumer disposable income, through lower fuel bills and therefore potential spending as there is a longer term saving also involved in the investment for the consumer. The scheme could have been designed to make the payback period more attractive for consumers than it is currently, without being too expensive to the government. Perhaps a scheme could have also been devised for office accommodation too? It might even have had a positive impact on manufacturing industry growth too.

The banks ought to be put under some pressure to ensure they are making finance available to businesses from the profits made in the final 3 quarters of 2009. This would at least help off-set some of the pain caused by the end of the emergency support package measures. The Chairman of Barclays was interviewed on Radio 4's World at One programme yesterday stating that they are ready to lend and invest in companies. Perhaps his colleagues at other banks are not being so generous.

Evidence from the real economy would suggest that there may be a slight touch of hubris in the statement, advocating as it also did the case for big seasonal bonuses for this year. I know of two real businesses; including one in building and construction of 150 years standing that went into liquidation in Q4 2009 due to lack of finance from the banks. I happen to know of a third; a proposed start up company that was turned down finance, by yes you have guessed it, Barclays Bank in Q3.

#25. At 2:34pm on 22 Dec 2009, Anand wrote:

"John_from_Hendon wrote:

"PS Fire Mervyn King - who regulated us into this disaster and is now intent on re-inflating the economic bubbles of house prices and equities - the man is an economic disaster for the Nation."

Hardly Merv's fault.
"

Sorry, but I disagree with your view.

Mervyn King (and his predecessor the late Eddie George) along with Nick Macpherson and Gus O'Donnell who are/were in change of The Treasury - along with the MPC are appointed to not only follow orders but to exercise their professional judgement and experience.

I know that many of these 'experts' knew (or were advised of the risks) that interest rates were far too low for the whole of the period in question - they knew (or ought to have known - if they has a half decent economic education - Harvard and Balliol?) that there would inevitably be a bubble economy created, and further if they had an ounce of integrity should have advised their 'master' of the situation a decade ago and if their 'master' did not heed their advice they should have resigned.

I can see now intellectually valid or logical reason for there economic agents of destruction to remain in post - and in consequence they must be sacked as they have shown that they lack the integrity to realise the enormity of their economic crimes against the people of this Nation and resign.!

I know it's difficult for a government to see beyond the next election, especially when it so likely to be lost. But isn't the important question "Where do can reasonably be in 5 and 10 years time and what do we do to achieve it?" Compared with that, which quarter growth re-starts and whether it's a tenth or a hundredth of a per cent just doesn't count.

If banks now have money to lend again, who should they be lending it to? House buyers to grow more private debt and another house price bubble? I'd suggest that now is the smart time for the banks to start participating in real wealth creation and help UK industry to re-equip itself when it's cheap to do so. If they don't want to lend, they should take an equity stake.

Tyto alba: Are you saying that there isnt more than a £1 trillion Public Sector Pension Liability that HAS TO be paid out from taxation?

Are you claiming that the £200 billion banking bailouts/losses should NOT be factored in when looking at debt per capita?

Whilst the Tory's adopted PFI in 1992 after seeing it used in Australia, they left office with less than 10% of the PFI liabilities accrued by this labour government, currently standing at well over £150 billion.

All parties have aknowledged that PFI was a terrible idea and has been a rotten deal for the taxpayer. Tories have already openly criticised it and have regrets about even using it. Major and Clarke are at fault for introducing it to the UK yes indeed,but this Labour administration turned it into a means of hiding the true extent of government debt, allowing Pridence Brown to outwardly show that he was sticking to his GOLDEN RULE!

G Brown has built a Ponzi Scheme that dwarfs that of Bernie Madoff, the man is the king of Enron style creative accounting, and he has commited a great fraud on the UK taxpayer for the last 12 years. You dont have to be a blue blooded tory to realize that much if you have even a basic understanding of book-keeping and budgeting.

To No.37. At 3:43pm on 22 Dec 2009, John_from_Hendon:

I can see where you’re coming from. But oddly enough I think Mervyn King has in fact helped keep things going so far this year.

As far as I can tell this year all the usual large net buyers of gilts (Insurance companies, pension funds, overseas investors etc.) were all net sellers of gilts, and the only large net buyer was the Bank of England.

The Maastricht Treaty Article 104(1) forbids Governments borrowing directly from central banks, and the Bank of England has so far spent 99% on pre-issued gilts and only 1% commercial debt.

It is now crystal clear that Quantitative Easing is a method of funding Government without officially breaking the rules.

What Mr King has managed to do is keep Government funded, whilst not allowing sterling to collapse. No mean feat if you ask me.

Now when Robert Stheeman (The Chief Executive of the Debt Management Office) gave evidence to the Treasury Select Committee in early November, he confirmed that they were cooperating with the Bank of England in the gilt market, but that when Q.E. stops, there could be a problem selling gilts.

I reckon everyone’s waiting to see whether Mr King carries on keeping the government funded, and if he does, what will happen to sterling, and if he doesn’t how many public sector jobs are likely to go.

In any event I think Mr King is a wily old goat, and I think I’d probably want to keep him onside, at least for the short term.

Brown has had 12 years in charge of the uk economy - if you want someonee to blame look no further.

Why could he not balance the budget during the boom years? Just think what stronger position we would be in if that money was at the nations disposal now.

Who turned a blind eye to what the banks were up to. Too busy (wasting)spending the money they were supposedly creating.

Who has abondoned British industry.

12 years is long enough to make a difference - history will be the judge of whether is has been positive - somehow I don't think it will be too kind to Blair & Brown

"But there is at least one piece of encouraging news in today's release: the household savings ratio in the third quarter rose to 8.7% of income, compared to 7.6% in the previous three months.

That's a surprisingly high number - the highest in more than a decade. Just 18 months ago, households weren't saving anything at all."

*************************************************************************

It is not surprising at all bearing in mind it is a ratio....and the denominator has gone down. Unemployment was below a million and now is around 2.5 million...so 1.5 million less people adding to the denominator.

This country has a 72.5% (28.9 million)employment rate so more than 1 in every 4 adults are not working at all. Add to this an ageing population, growing public debt, growing national borrowing etc etc and anyone talking about "green shoots" should be shot. We are in a decade of recession equivalent to the 1930s.... people just have not realised it yet due to political spin.

All this speculation about whether we're in recession or out of recession, so what?!

Do you or the Government really think the moment we're "supposedly" back to growth we're all going to shout hurrah!?

Wearily some may jump to the conclusion I don't want to see growth and are itching to label me a doom-monger. However, this is rubbish! I want growth, just the right sort of growth. "Growth," fuelled by debt-ridden asset bubbles, is rubbish growth! I do not want this.

Sadly I see Governments itching to get their hands on what little of our savings there is, as they will no doubt claim, that it's, "to save the country!" Almost forcing you to spend, to boost the economy and if you don't, they'll tax you anyway?

But a double-dip is a real threat, the removal of QE, Banks having to reduce lending even further (not a bad thing in terms of removing the risk of asset bubbles,) to shore up their capital requirements, the possibility of interest rates rising from 0.5% to even 1.5%, still low, but enough to knock expectations about future investment sideways and then tax rises, etc will all serve to "suck" money out of the economy?

But one thing's for sure, if property prices rise it's a sure sign that there's more money around than is good for the economy!

Savings rate is the net of borrowed amounts and savings. It mostly does not include regular pension fund contributions.
Debt reduction seems more likely then actual saving. Maybe many people are taking advantage of their extraordinary low mortgage rates, and leaving their monthly payments at the same rate as before? Or maybe not reducing their repayments as fully as they could do? For as long as inflation adjusted interest rates remain as very low as they are, it's likely that early mortgage repayments will continue to drive up the net savings rate. Eventually, the Council of Mortgage Lenders may tell us if that's happening.
The next key indicator will be retail and internet spending figures for December. Hopefully they'll net at much more than December 2008.

#16

I think you will find Thatcher and Majors legacy was the strong economy that Messers Bliar and Broon inherited.

I think we should applaud the increase in the savings ratio - long may it go on. For us born at the ned of the war and early on, savings is a way of life. Squirrels do it, why can't we?

As to the GDP figures, how can we be so precise about the numbers. 0.1% here, 0.1% there. The truth is we are bumping along the bottom because we overdid the consumer and Government spending during the good years. A magic increase to growth say in the 4th quarter is still likely to be a statistical projection within the limits of accuracy - and nothing to applaud.

Monsieur Brown was very good at spending like there was no tomorrow and didn't follow Cyril the Squirrel and store away a few nuts. That's why we are lagging our American and Continental cousins.

Anand you really should stop running around doing Chicken Licken impersonations for several reasons:
1) it doesn't matter how bad it is - we are all in it up to our necks so constant exaggeration of the situation is meaningless unless all you are interested in is getting a change of government - something I am not keen on given the alternative
2) the pension deficit: that would be the deficit caused by the pension holidays that the Tories allowed the companies to take because they had such huge surpluses in their pension schemes that they would always be able to service their obligations is it?
3) PFI / PPP is a fraud, plain and simple - and being practised across the whole of the industrialised West, so you cannot blame Brown & Co entirely.
It is the lack of proportion in your wailings which I find disturbing: I will be going back to work on the 4th January, the sky will not have fallen in, and whilst we will all be affected for some time to come this realignment of expectations - provided it is fairly shared - is no bad thing: the drive for economic growth is the root cause of global warming - but that is a different argument.
Get some perspective.

22. At 2:00pm on 22 Dec 2009, John_from_Hendon wrote:
I mistrust the figures that show a resurgence in saving.

The incentive to save has never been lower and if in these circumstances people are actually increasing their net savings it can only foretell further economic destruction in the near future.

People are reacting as though the economy is in a far worse position than the official figures tell us. The may mean that the official figures on the recession are a load of cods wallop (as I suspect) or that the savings figures overstate the actual savings (which is possible).

Whatever - savings are still far too low.

We will only find out once interest rates return to rational long term levels of 5 to 6 percent.

PS Fire Mervyn King - who regulated us into this disaster and is now intent on re-inflating the economic bubbles of house prices and equities - the man is an economic disaster for the Nation.
--------------
Don't say King say Brown

Who cares which group of politicos are in power - they all do what they are told to do. Same with regulators - they also follow orders. Argue about them if you must, but nothing will change and you are just misdirecting yourselves.

This is what is going on in the world of the rich

https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6861063/US-trader-rakes-in-2.5bn-as-bet-on-banks-pays-off.html

If you can be bothered to look you will find that this gentleman is not on his own and is a long way from being the highest "paid" "worker"

So yeah, some people have no intention at all of sharing any pain, or working to rekindle the Dunkirk spirit.

These guys will likely be well educated people and its a racing certainty that they understand the importance of money velocity in the economy, and that they also know the velocity of their money is a lot lower than the velocity of other peoples money.

The problem I have as I read a lot of the comments is that politics has the awkward ability to get in the way of and, usually, distort any form of decent economics.

Whether one believes that GB saved the world or not (I hear it was actually a couple of chats from Standard & Chartered who came up with the plan) QE has been a success. The nay-sayers raise the spectre of debt-GDP ratios as the ghost at the feast and, to an extent they are potentially right. But that is why this data is actually very important indeed.

The nay-sayers classically argue that we will never recover from the debt we have incurred (even though they conveniently forget that ratios are still amongst the best in the G8), that the actual situation is much worse due to the PFIs and that the money-printing will result in the sort of inflation that will make Zimbabwe a safe haven.

While good tabloid fodder, all these points are, to a greater or lesser extent, holed below the waterline. First, the QE hasn't been just borrowing to spend but has been supporting balance sheets - there is every hope of a return at some point which is very different to borrowing to spend. Second, PFIs do carry the prospect of pain but their current status is more the ghost of Christmas future insofar as they will limit HMGs room for movement rather than exacerbate the current situation.

Thirdly, the threat of inflation will only come through in the manner suggested if (and it is a very big if) actual money supply (whatever your preferred M measure may be) expands. If we agree that the major part of QE isn't actual cash in supply (ie the dosh propping up the foundations of capitalism) then the potential for inflation is more limited than some would have us believe. And this is where the increased savings rate is hugely important as it shows us the de-leveraging of the consumer. This process (as individuals slowly re-balance their finances) will be part of the outflows from money supply that stand every chance of being a significant tool in HMGs armoury of controlling inflation.

It is true that this will also be a headwind to growth as it means that the consumer won't come back for a considerable period, unless we see a sudden (and almost certainly ill-advised) relaxation in personal debt allied to over-optimistic messaging from the political classes. But we will do much better to have very conservative levels of growth if the flip-side is that the UK consumer is rebuilding his/her position.

#40. Dempster wrote:

in support of Mervyn King

I look at it like this:

- Almost anybody can take a wheelbarrow full of money and give it away.

- What concerns me most is his absolutely abysmal economic judgement that got us into the hole in the first place. For that alone he should have gone.

We paid Mervyn King quite well and in exchange, we required that he exercise his professional economic judgement to set interest rates in such a way so as to maintain a stable economy. What he achieved was the most destructive economic bubble and crash, almost complete destruction of the banking system and the worst recession since records began.

He should have known what he was doing as many others did for the whole of the last decade and wrote to him, and his predecessor, warning him (and The Treasury) - I have the letters. If he did not know then the money we spent educating him was entirely wasted and his life gaining such education was a waste. If he did know then he must answer the question that goes to the heart of his integrity - why did he not speak out?

For Mr King to stay in his post he must either be economically badly educated (which his CV suggest is not the case), or such economic education is totally without merit (which may be the case - Harvard please note - where he shared a study with Ben Bernanke). Either way he is not fit for purpose.

(He does have a 5 million pound pension pot.)

50 TomMW, are you Gordon in disguise?

Away, with that rubbish! We have already hit the berg and are Sinking faster as a RESULT of Brown !!!

We are in real trouble !!!

hint : Public sector = waaaaaaaayyyyyy tttttooooooo laaaarrrrrgggggeeeee

And while I'm at it 50, if you think inflashtion (gb's version of) "is a big if", why not tell that to the investors that will buy our debt at 0.5% Ha Ha !!!

The printing presses are full tilt !

51. At 7:43pm on 22 Dec 2009, John_from_Hendon

OK well I guess you’ve got me dead to rights on this one.

Yes he has feathered his own nest, as those in the business of banking do seem particularly well adept to do. And yes we are in a financial mess.

And the Bank of England web site says:
The Bank's Financial Stability Role
A stable financial system is a key ingredient for a healthy and successful economy. People need to have confidence that the system is safe and stable, and that it functions properly. The Bank's role is to contribute to maintaining the stability of the UK financial system.

To The Governor of the Bank of England
We blogging on the BBC business web site (hereinafter referred to as the claimants) believe that the Bank of England (hereinafter referred to as the defendant) owes us a duty of care in maintaining financial stability in this country, and that it has failed in that duty, in that the financial system was and is not stable, and this instability has caused us loss, the extent of which we will detail in the near future.


Despite the above, he has managed to fund the government via the back door, and he hid a £62 billion loan to the banks and fooled a skip full of business journalists at the same time.

I think I’d still want to him on my side to sort this mess out.

Although I may take some issue with his pension fund, about a £4 million issue in fact.

Following on from the earlier post, the date for publication of the preliminary estimate of UK GDP Q4 figure is 26th January 2010.

I could find no references to any releases on retail sales figures from the BRC. I presume the official ONS numbers will not be released until well into January as per the GDP numbers.

Let's hope these numbers start the New Year with a cheer.

Don't mistake savings for paring down debt. Consumers have realised that borrowing on the strength of increasing house prices/wages is an assumption that is now a luxury so it's time to reduce debt. Pity that this self truth has not dawned on the UK govt who in their desperation to cling onto power deem a supposed recovery based on negative interest rates, money borrowed on a scale never before seen and heating up the printing presses, to be a price worth paying. Talk about short termism, makes one want to reach for the sickbag.

#54. Dempster wrote:

"I think I’d still want to him (Mervyn King) on my side to sort this mess out."

His (Mervyn King) spinelessness or economic incompetence contributed to the problem - I think the only reason you could possible want him still is if you think there is nobody else who could do the job - and I think that there must be hundreds of thousands of people in London let alone the UK who have more economic sense than he has displayed that could make a better fist of it than he has. Please consider if your wanting to keep him is not a council of despair!

Hi Stephanie

Thanks for your update on this subject. I have been reading about the accuracy of these numbers on notayesmanseconomics and after the revised numbers for America too am starting to wonder what is really going on.

It seems others are too from reading the other posters...

A superb, informed, balanced yet brief article. Fewer words, well sourced facts and a fair assessment: Excellent. Now, we just need a government with such skill.

A remarkable figure indeed.

given that an extra 3-5% of the working population is living off their savings (or not saving when previously they did) whilst looking for a job, then this savings rate by the rest is amazing.

gotta be debt repayments.

Endless rants about "the people running the country" may be theraputic, but they won't solve anything. Trying to control the economics of the country must be like herding the biggest flock of sheep imaginable. No wonder neither one man, nor even worse a committee make a mess of things.
It is oft argued that macro economics does n't work, but it seems pretty simple to me.

My son is a builder, he gets paid in buttons, he needs a new concrete mixer so I lend him some buttons, and he gives me a few back for the privelege. Once he has paid off the mixer, he'll keep the money and buy a tile saw. He works hard, gets a lot of buttons, and gives some to a guy who paints his house. if he puts some on a horse in the 2.30 at Epsom and it loses, tough, and the family don't eat. Some things he can't look after, like buying stuff from abroad, so him and his mates club together and pay someone to look after it for them.

Ok forgive the parable, but it is Christmas. Point is we will only move forward when every single one of us takes responsibility for our own actions, and behave in a sensible manner. If I knew "the facts", I would be better equipped to make a sensible judgement. The majority of politcians have other agendas, George Orwell spelled that one out. and I am a bit long in the tooth to start an OU degree.

So if anyone from the BBC reads these pages, what about doing a genuine public service, and applying some of the apparently endless numbers of researchers to a series of programmes dispassionately presenting the facts of the case. I will feel better about things, I suspect a vast number of other paople will be similarly satisfied. Who knows, it might have a beneficial effect on the country, and if the public were told the facts, I am pretty sure it would be the last we would see of a number of our elected representatives.

We are promised "Face to Face" confrontations by our leaders in the new year. I am sure I will be hugely entertained (I miss Morecambe and Wise)
but I have little hope of learning much.

50 TomMW

Politics does distort economics and always has done.

Your golden scenario about QE is a reasonable presentation of good academic economics. However, I do beg to differ.

The concept of QE was presented last March as being a means by which the deflation consequent to the staggering debt position then prevalent could be ameliorated. The idea was that this money would infiltrate the economy and generally underpin liquidity. What is evident is that a lot of this money has gone onto bank balance sheets but not filtered through into the real economy. The reality is that QE has allowed the government to cover its extensive debt problems. Therefore I feel it is much to early to declare QE a success. It has helped the economy through a very bad patch but the jury will have to remain out until full recovery and a return to growth has been achieved. This will not be for some years.

One of my more common complaints is that I feel trapped in an academic exercise being conducted by economists whose short-sightedness put us into this situation in the first place. This does not make me feel very comfortable.

The problem with QE is that this funding did not get into the wider economy because the banks made access to this money so conditional that proprietors of smaller business facing a shrinking market, smelled a rat and failed to take up the offers.

Furthermore there is also the argument that the deflation that QE was designed to resolve has not happened. This could be a specious argument as QE may very well have succeeeded in preventing deflation. However, any deflation has been mitigated by a 25% collapse in the value of sterling against the US dollar and the Euro. Whilst some of this currency adjustment has fed into more exports, the collapse in the productive base in the domestic economy still continues suggesting that QE has not worked at all for the real economy.

Finally the issue of inflation is beginning to be bothersome. Whilst the statistics suggest that overall inflation is constrained it seems only constrained by a lack of demand. Essential items which are imported such as fuel and food are becoming more expensive by the day.

To my mind we face a clear risk of stagflation: just like the Seventies when prices rose in a stagnant economy. Add into this the serious overspend in the public sector which has to be tackled, although it would seem that the Prime Minister is having a St. Augustine moment on that particular topic for the next few months, and we are looking at rising prices, a collapse in domestic demand and even more unemployment. This can all be summed up in one word: poverty. This might also trigger a collapse in asset values.

There are those who accuse Messrs. Blair and Brown of creating a Ponzi economy. This argument assumes that these two gentlemen knew what they were doing. The evidence suggests that they hadn't a clue what was going on but it was all jolly good fun whilst it lasted. The unravelling of the mess that they and their special friends in the City have caused is going to be like a collapsing Ponzi: namely, a lot of people are going to lose everything and most of those are innocents whose only fault is that they believed the lies they were told by people who should have known better.

I think you will find that this is the cause for the anger and the politics. Of course this will also impact on the economic decisions which are to be made.

51 & 57 John-from-Hendon

You might be interested in this extract:

I quote: "But if the present boom disintegrated, who would be in charge of the rescue? The Bank remains "lender of last resort", but the FSA and treasury have important and wide-ranging roles in any crisis.

In the past the Bank has launched salvage operations pretty much unhindered. Next time it will be much more circumscribed, especially given its partners may not agree with the Bank or with each other as to the nature of the problem - or even as to whether there is a problem." Unquote.

I realise you think Mervyn King is an economic incompetent but maybe he was asked by Mr Brown of "no more boom or bust fame" to go out and play tennis with a cricket bat - i.e. with one hand tied behind his back.

Oh, when was that quote made - well in the year 2000 when tech shares were going through the roof and house prices in the SE were taking off.

Perhaps we should heed the lessons of history and not split responsibility. The buck I think stops at No 10 (and 11)!

Maybe your Stephanomics were right after all? Here's what the Financial Times reported this morning:
'Output in the UK is now 6.03 per cent lower than it was at the peak in the first quarter last year. That makes the recession marginally deeper than the 1979-81downturn, when the economy declined by 6 per cent. But although the recession continued into the third quarter there were some positive signs for the economy.
Once the effects of summertime stoppages at North Sea oil rigs for planned maintenance work were excluded, the rest of the economy saw no growth rather than a decline.
"Non-oil GDP was more or less flat in the third quarter", said Robert Barrie at Credit Suisse. "That's how we used to rate recessions and recoveries in the old days - maybe the recession was over in the third quarter after all?"
Weaker than originally estimated output from business and financial services, as well as downward revisions to industrial production, offset big upward revisions in constructon and business investment'.
Which more complete information suggests that your Stephanomic analysis (of -0.1 percent growth) may even have been too pessimistic. And that the loss of money supply from households paying down debt has been balanced by the BoE's timely Quantitative Easing.

62. At 11:08am on 23 Dec 2009, stanilic wrote:
"...it would seem that the Prime Minister is having a St. Augustine moment on that particular topic for the next few months"

Don't you mean a 'St Paul on the road to Damascus' moment - or maybe the PM is going to attempt to convert England to Christianity? Now that would be worth seeing....

St Augustine was the man who asked to made virtuous, but not yet.

I understand from the radio this morning that the Prince of Darkness is endeavouring to induce the Prime Minister to become more virtuous much earlier as the argument of Labour investment and Tory cuts is not going to convince and will more likely make Labour a laughing stock at the coming election.

So we have a situation in which the Prince of Darkness is endeavouring to impose a Damascene moment on the Prime Minister, perhaps to darken his lightness and thus turn brown into black. There used to be an alchemical process in which supposedly base materials were turned into something more valuable but it is only rumour that a few ever achieved that miracle.

The great difficulty in bringing Christianity to modern Britain is not only that since foot and mouth there are few shepherds left, but you try finding three wise men and a virgin!

In 2008 ZaNuLab(and the BBC) said we`d be in growth by now.

They willfully lied/were massively "mistaken".

Now we have these same characters "guaranteeing" that "growth" will return next year.

Never mind that Amerika is turning into an economic and political basket case,not to mention the possible debt defaults in a number of other countries.

We need to liquidate the bankster financial terrorists and create a state bank issuing our own money.

#45 - well said that man.

Britain makes nothing now and owns nothing now, think corporate sell-offs of O2, P&O. Look at the FTSE, mostly Russian and Kazakh miners looking for a home, but not a product of the UK economy.

Brown and co are responsible for all of this (bar closing the mines which never made money and privatising British Rail which never made money).

How are the people of the UK going to make money in the future? There's only so many call centres India is going to need!

The Narcissism of small differences.. meaning, I presume the reflected love, obsession and irrelevance of small changes in economic stats leading the government of the day and eventually all ruling parties to meet their end and become nothing more than a memory.
We are still in a recession as more and more people lose their jobs and can't find another that pays anything more than breadline wages, more and more people spend less and where they can save more for a rainy day.
There seems to a yawning gap between the perception of the Politicians and reality.

Stanilic #62 another good post...
Remains to be seen if Osborne experiences a Damascene conversion to QE - as you point out QE is merely buying time for whatever government we have, to take steps to adjust the economy from its current delusional state.
The banks aren't lending because there's still too much (retail and commercial property) debt out there (that's what I hear from people who ought to know) Why would the banks lend to businesses founded on business plans dependent on access to easy credit? The state sector will have to adjust to the new economic reality of a GDP growth hobbled by bank support induced debt. Below trend growth and (in my opinion) serious reduction in economic output capacity of the UK implying huge real cuts in state activity (Years of easy credit, I would argue, have reduced our capacity to compete and manage our private sector business finances effectively - working capital now must be more self generative rather than cap in hand to the bank. Easy credit has further distorted the employment and skills market. PFI has distorted long term investment in infrastructure - if Crossrail is so vital, let the private sector fund it, no thought not!). The cunning plan will be how to withdraw the intensive care - will we survive in persistent vegetative state, or spluttering as we take our medicine or will the shock prove terminal? Sobering thought at Christmas.

Surely if, and I say IF people are saving more, when interest rates are near zero, all it tells us is that we are really worried.
The banks are getting our money for free!
I hate the word 'conspiracy' in contexts like this--but honestly what is going on?
They talk to us about economics; this makes a total mockery of the entire so-called science.

68. At 12:24pm on 23 Dec 2009, Mike D wrote:

"How are the people of the UK going to make money in the future? There's only so many call centres India is going to need!"

Hemp and ethanol production could be a good start.It would solve the depression problem in the population and the energy security issues as well :)

Something here doesn't add up. We are saving more and we are spending more and we are reducing our personal debt on credit cards. Meanwhile there are far more people out of work, bonuses have been slashed and salaries have been pegged back.

So where is all this money coming from?

73. sandy winder
"Something here doesn't add up. We are saving more and we are spending more and we are reducing our personal debt on credit cards. Meanwhile there are far more people out of work, bonuses have been slashed and salaries have been pegged back.

So where is all this money coming from?"


We're printing it :O)

#68 Mike D

"Brown and co are responsible for all of this (bar closing the mines which never made money and privatising British Rail which never made money). "

This winds me up.

Brown, actually, is not responsible for any of this at all. I am neither for or against Labour, Brown, or the UK. However, it should be plain to all with even a half a gram of grey matter between their ugly British ears that this crisis has got absolutely nothing to do with the policies of a demented, arrogant clan of island fools clinging to the past and arrogant enough to think that their dump of a country actually mean much anymore.

This crisis has been a hell of a long time in the making and will take a hell of a long time to mend. Pull your head out of the mud, and wake up to this fact. Party political distractions are just that: distractions. It's the banker, through loans, who decides if you get fed, sheltered or educated, and if anyone in that demented clan of politicians had anything to do with handing power to them, it would have been more Thatcher than anyone else.

Now either shut up and go back to sleep or wake up and say something half right.

#73 & #74

What doesnt add up is that we are not saving more. Read the original article more carefully.

Also, use your brain, it might help.

169. At 10:36am on 13 Dec 2010, foredeckdave wrote:

IF, "These communities eventually coalesced to form America." then they would still discernably be Germanic in culture and their common language would be German. Now even you cannot prove that to be the case.

The American language was based on English and all immigrants accepted the 'standard'.

Nothing to do with your argument.

It may have passed your attention that German economists and politicians are already addressing the question of export surpluses.

In the long-term surpluses are damaging and are addressed through exchange rate appreciation. Nothing to do with tariffs. It is basic logic that if exchange rates were completely free to rise and fall surpluses and deficits would cease to exist.

Perhaps one day you will finally understand that continually preaching rubbish does not make it fact.

I take great care with facts and do my research. You just don't like the argument. This thread started with the basic assertion that culture / language is more important than the nation state, especially in the case of the Germans.

All the evidence does point to, whether you like it or not, that America to-day has more German influence than English.

This is a classic of accusing your opponent of the faults you possess in abundance.

You undermine your case by falling back on insults.