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On Wednesday the British economy flatlined. Despite a weak growth of 0.5% for Q1 of 2011 the economy flatlined. This is to say that the contraction of Q4 for 2010 was more or less equalised by Q1’s figures.

The maths for this is as follows: 100 x 0.995 x 1.005 = 99.9975. It’s actually a slight contraction of 0.0025%, which is as good a 0% growth. Now to explain the maths. 100 is the constant. 0.995 is the result for Q4 2010. 1.005 is the result for Q1 2011. One then multiplies it together to get the average, which gives one what the economy is actually doing.

What is the economy doing?

As a whole it is doing nothing. It’s not growing but nor is it contracting. It’s just existing. Stagnating if you will. The individual sectors are doing things. The business services and finance increased by 1%, transport and communication increased 2.7%. The government grew by 0.7%, so much for the smaller state… Hotels and restaurants grew by 0.3%. Manufacturing increased by 1.1%, and agriculture, fishing grew by 0.6%.

Construction contracted by 4.7%. Mining and quarrying contracted by 0.4%. Utilities, such as electricity, gas and water, declined by 3.5%.

What’s next Quarter going to look like?

Tough call. The economy could contract as the austerity measures begin to take hold and consumer confidence begins to fall. Construction is likely to contract even further as the Regional Spatial Strategy was scrapped last year and the localism bill will encourage NIMBYism. Government is also likely to contract and probably quite sharply too. Q2 and Q3 are the interesting quarters, and potentially scary quarters too as they could usher in another recession.

What is certain?

Nothing is certain, but expect the Bank of England base rate to remain at 0.5% for the remainder of the year.

Categories: Uncategorized
  1. Ust Oldfield
    January 23, 2012 at 10:20

    Reblogged this on The Guerrilla Economist.

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