The Edge

Richard Northedge takes on corporate finance

Now even budget officials admit treble-dip is coming.

You read it here first but now everyone is saying it. Britain’s GDP is falling again, pushing the country towards treble-dip.

In November the Bank of England governor eventually confirmed this blog’s prediction by admitting that 2102’s fourth-quarter growth could be negative. Now the Office of Budget Responsibility has produced figures for the Autumn Statement confirming that the UK is going backwards again.

The OBR has cancelled its forecast of positive growth for 2012 and now predicts a 0.1 per cent fall for the year. There was no explicit mention of the fourth-quarter but for the sums to tally, that means a final-quarter fall of 0.3 per cent – more than wiping out the euphoria of the 1 per cent growth in the third-quarter. Even allowing for some rounding error, that is an expectation of a big fall.

The important point is that the overall negative figure for 2012 is not caused by the recession at the start of the year but by a return to slump at the end. Rather than coming out of slump, we’re heading back in.

The GDP decline in the first two quarters of 2012 were 0.3 and 0.4 per cent. To end up with a 0.1 per cent annual fall from compounding those with the 1.0 per cent third-quarter rise must mean a reverse as severe as the falls during the past recession.

And straight after the OBR gave its pessimistic picture to the chancellor, the Office of National Statistics came out with evidence of the new downturn. Production in October 2012, the first month of the final quarter, is estimated to be 0.8 per cent below September’s level and 3.0 per cent down on the year. Manufacturing was down 1.3 per cent down on the month and 2.1 per cent compared with a year earlier. That bodes badly for the quarter.

The first three months of 2013 would have to be negative as well to give the two quarters necessary for a recession, but a new slump at the end of 2012 is enough for it to be labelled treble-dip.

The Bank of England still reckons GDP will have risen by 0.2 per cent over 2012 but all the other official forecasters have revised their predictions downward since October and now expect contraction in the UK economy. The OBR, with the OECD and National Institute for Economic & Social Research, are most optimistic in forecasting a 0.1 per cent fall in GDP; the European Commission expects 0.3 per cent and the IMF 0.4 per cent contraction.

The good news is that all forecasters expect growth for 2013 – from the OECD and EC on 0.9 per cent to the OBR and Bank of England on 1.2 per cent. The bad news is that all those forecasters have overestimated UK growth over the past year.



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