Friday, February 19, 2010

Double dip recession, or did it never end?

Today’s news that UK Retail sales have fallen by 1.8% between December and January, the largest drop in over 18 months, is yet more bad economic news for the government. Coming on the back of the latest underlying unemployment figures, the glacially slow GDP growth figures and record government borrowing in January, I think that the chances of a double dip recession have just increased significantly.

The ONS are putting a brave face on the 1.8% decline, pointing to heavy snow fall in january that reduced the sale of household goods and petrol. I however suspect that steady drive of the January sales into December meant that the Q4 GDP boots of just 0.1% in the last quarter of 2009 had just as much to do with the january sales starting earlier than it did with economic growth.

I have been saying for a long time that the headline unemployment figures are hiding a nasty reality underneath and finally this time the mainstream media caught on, perhaps thanks to some quality briefing from CCHQ.

Total unemployment fell by 3000 to 2.46 million, a reduction of just 0.12%, which if this was a poll or survey would be well within the margins of error, whilst those claiming jobseekers allowance rose by 23,500 to 1.64 million, a rise of 1.45%. What this suggests is that there was a large group of individuals either doing seasonal work and who have now lost their job or who were holding out to find another job who have now been unable to find anything, neither of which are a good sign.

The rising number of people considered “underemployed”, i.e. who want to work more hours, is also a bad sign, someone who is working less hours than they want to no doubt has less money to spend. The number of people filling temporary jobs also increased perhaps showing that employers are unwilling to take on new contract staff and expect more bad times ahead.

Again the number of people who are economically inactive increased whilst a new record number of 16 and 17 year olds were unemployed which suggests that employers are continuing to allow people to retire without replacing them with new younger workers.

Perhaps the most worrying economic indicator towards a double dip though is the record government borrowing in January. I say record, but for the first time since records began the UK government have had to borrow money in January which is a terrible sign. Traditionally January is a very good income month for the government with VAT from increased Christmas sales, and income tax from the self employed. In total tax receipts were down 11.8% compared to last year meaning that the self employed and businesses have been hit hard. Either they haven’t made as much money in the past year as they did the previous year or in a potentially even worse situation they can’t afford to pay the tax they already owe. Neither situation is good news

Brown continues to tell us that we are best placed to come out of recession and that the recovery is fragile and any spending cuts will destroy it. In reality all the evidence seems to point either for us to double dip or that therecovery just hasn’t happened. The ONS have yet to revise the GDP growth statistics with full data and with indicators like this it won’t matter how much Brown prays for them to be revised upwards, I just can’t see how they will be.

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