Half a cheer for depression's end

Sunrise in the City of London

On Friday we will have - depending on how you look at it - either the most symbolically important or the most pointless economic event of recent times.

Namely, official confirmation that the depression caused by the mother of all banking and financial crises is finally over. UK output or GDP has finally exceeded its pre-recession peak (the technical definition of a depression is the period during which GDP remains below that peak).

On the official government stats, GDP fell by 7.2% between its peak in the first quarter of 2008 and its trough in the second quarter of 2009.

Since then recovery has been unusually - some would say lamentably - slow, and national output in the first three months of this year was still 0.6% below that peak.

But that recovery has been picking up considerable momentum over the past year. The UK is now the fastest growing economy of all the world's rich ones.

So in the quarter to the end of June, quarter-on-quarter growth is bound to have been more than 0.6%. The respected National Institute for Economic and Social Research predicts growth of 0.9% in that period.

Which means - hooray hooray hooray - that the depression is officially over, and that we are now once again earning more than we did before the banks got us into our pretty pickle by starving us of credit.

All of which is terribly exciting. And we can expect the Tory chancellor, George Osborne, and his Lib Dem treasury chief secretary, Danny Alexander, to shout from the rooftops that this economic renaissance is all down to their sagacity and tough actions.

Except, as is usually the way with blinkin' economic statistics, it isn't quite as straightforward as that.

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We will basically be doing the equivalent of celebrating a World Cup victory that may or may not have actually happened some months earlier”

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For one thing, the Office for National Statistics is in the process of reworking how it calculates GDP. And it has already admitted that the number I gave you above, about how far output fell from its peak between 2008 and 2009, is wrong.

The current officially recorded contraction of GDP exaggerates, a bit, the magnitude of the decline in output. Which implies that the previous peak for output was almost certainly surpassed some time ago - so long, that is, as there aren't significant offsetting revisions to subsequent growth.

Chances are, however, that this terrible depression actually ended some while ago, probably last year. Fingers crossed we will know more about this - I won't say the truth of it (nebulous concept in economics) - in September.

So on Friday we will basically be doing the equivalent of celebrating a World Cup victory that may or may not have actually happened some months earlier.

This could only happen in the wonderful world of economics.

Which brings me to my second and third reasons why you may not need to put out the "Britain is booming again" bunting on Friday.

For one thing, the industrial experience of the past few years has been variegated.

So we are certain that the service industries, which dominate our economy, are already producing more than they did before the great crash, whereas manufacturing is still generating considerably less - 7.6% less in the first quarter of this year, on those questionable official figures.

The vaunted rebalancing of the economy between intangible services and tangible making has not remotely happened - and probably never will.

Perhaps more importantly, it is very unlikely that you personally - yes, I am talking to you - feel any richer than you did at the beginning of 2008.

Because whichever way you cut it, most people remain poorer, largely because the population has increased considerably faster than output has recovered.

Shoppers on Oxford Street Despite the upturn, "most people remain poorer"

How much poorer?

Well the acknowledged brainboxes on this are the Institute for Fiscal Studies.

And they say that a year ago real median income - that is adjusted for the impact of inflation - was still 5.8% below its peak for a typical individual (the median calculation) or 8.5% lower on average (the mean assessment).

There are various other ways of cutting these figures, according to which measure of inflation is used or whether housing costs are incorporated.

But the relevant point is that living standards for most British people haven't yet recovered to their pre-crisis levels - and probably won't for two or three years yet.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 803.

    99. Billythefirst
    More people in work than ever....because we've replaced one job with three...and diluted one wage between three. Zero hours, under employment and tax payer subsidies - all part of Cameron's sub prime job sham.


    Yes indeed, that`s progress Only thing is I do not believe for a moment that Mr Millipede would be any better and Ophelia would be a disaster.

  • rate this

    Comment number 802.

    97.The Village Idiot

    The Tories have not taken any hard decisions at all - you are being taken in by their lies.

    The 'hard', but correct decision ,would have been (& still is) is to abandon 'extraordinary' money and return rates to 5% ish. This will really lead us out of the Depression - not prolong it as the fools have done. We must catalyse the restructuring of debt and assets or wither.

  • rate this

    Comment number 801.

    790.Dor! "Higher Interest rates would mean depression was delayed"

    Do you not grasp the essence of that which you wrote.

    Without higher interest rates we can NEVER get out of this prolonged Depression. This fallacy of not being able to raise rates is analogue to the language used in 1870 Long Depression (20yrs) I banged on about a few year back when we still had space to write. (> 400 chs)

  • rate this

    Comment number 800.


    Were you about to have a Proustian moment - in 7 volumes? Recall bk 7 re WW1. Is this the time you seek to find?

    The reality is that the economic questions of 2008 are still with us, still unresolved and there still is but one solution. All effort since has been worse than wasted - counter productive - if one believes that jobs and a working capitalist economy should result.

  • rate this

    Comment number 799.

    More people in work than ever....because we've replaced one job with three...and diluted one wage between three. Zero hours, under employment and tax payer subsidies - all part of Cameron's sub prime job sham.


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