By Claire West
Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD) comments on the preliminary estimate of fourth quarter 2010 UK GDP growth published earlier today by the Office for National Statistics (ONS):
“The latest GDP figure is astonishingly poor, even accepting that the ONS preliminary estimate is as always subject to revision and in the fourth quarter of 2010 also likely to have been affected by severe weather conditions. While it’s too early to call this a genuine contraction in the economy, the signs are that the economy is slowing markedly raising the prospect that there will be a further significant rise in unemployment this year. Today’s GDP figure is consistent with the CIPD’s estimate that UK unemployment will reach 2.7 million by the end of 2011.
“As for policy, the GDP figure will add to the dilemma currently facing the Bank of England as it decides how to cope with the twin pressures of seriously below trend economic growth and above target inflation. The CIPD hopes that today’s figures will deter those calling for higher interest rates.
“The Government, meanwhile, would be well advised to use today’s figure as an opportunity to reconsider what appears to be a ‘sat-nav’ approach to fiscal policy. Pursuing a fixed course of cuts in public spending and tax increases regardless of obstacles and bumps in the road is not sustainable — particularly in the face of fairly large bumps like this. If the economy continues to underperform and unemployment soars in the coming months, the Government will need to make clear that it is willing to adopt a more flexible policy for cutting the fiscal deficit.”