By Michael Baxter
Think of it in terms of mountain climbing. A recession is like falling down the mountain. A downturn relates to that period of time following the fall, in which you are trying to climb back up.
We didn’t know it at the time, but in early 2008 the UK was at the top of a mountain. As recession bit, it fell from the summit. And then it stayed down. As other countries, most noticeably the US and Germany, climbed back up and started gaining fresh altitude, the UK stumbled along in the valley.
Then at the end of last year, the UK did something rather disturbing. It fell from the valley into another even deeper valley. It entered recession, whilst still in a downturn.
According to data from the Office of National Statistics out this morning, the UK climbed out of the deeper valley in Q3.
This then is the story of the last 12 months. In Q4 2011 UK GDP contracted by 0.4 per cent. In Q1 2012 it contracted by 0.3 per cent. In Q2 it contracted by 0.4 per cent. In Q3 it grew by 1.0 per cent.
It means that UK output is now just 0.1 per cent below the Q3 2011 level. In other words, it has climbed out of the deep valley, and is within reach of the slightly higher valley.
The summit it occupied just under five years ago still towers above, however.
It’s the longest downturn on record. And right now the UK’s output is still almost 4 per cent below its peak.
But is it the beginning of the recovery? Does economic Shangri-la await us in the valley of prosperity over the mountain?
The question mark partly relates to the effect of one-offs. Q2 saw a slump because of lost production caused by the jubilee weekend. Q3 made up for that lost ground. Then there was the Olympic games.
Vicky Redwood, Chief UK Economist at Capital Economics, reckons that of the 1 per cent jump, around 0.7 percentage points was down to one-offs.
She said: “And as the Olympic effects unwind, it is still possible that the economy contracts again in Q4. This would leave GDP in 2012 as a whole shrinking.”
Markit’s Mark Williamson said: “There is a real risk that a return to contraction might be seen again in the fourth quarter. The business surveys have signalled a slowing in the pace of growth to near stagnation in September, and consumer surveys have meanwhile shown households to have grown more pessimistic about their financial outlook in October. It also seems unlikely that exports will act as a spur to growth, with recent PMI surveys showing ongoing malaise in key export markets such as the US, China and in particular the Eurozone. There is also increasing evidence that companies are focusing on cost-cutting in the light of the gloomier outlook, trimming headcounts, cutting investment and reducing other non-discretionary costs such as advertising and marketing.”
Still, be grateful for small mercies and Q3’s data was at least that. As for David Cameron letting it slip in parliament that good news was on its way, maybe he was just suffering from altitude sickness.
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