By Rowena Mason
Daily Telegraph, January 25, 2013
Ministers today admitted Britain is facing “very, very grave difficulties” after figures showed the economy did not grow at all in 2012.
Both George Osborne, the Chancellor, and Danny Alexander, the Chief Secretary to the Treasury, said they do not underestimate the scale of the challenge but insisted the Goverment is on a “path of repairing our public finances”.
Despite their optimism, City analysts warned that the economy is still “in crisis”, more than four years after the financial crash of autumn 2008.
Economists from the Royal Bank of Scotland said the last four years have produced the worst economic performance in a non post-war period since records started being collected in the 1830s.
Stephen Boyle, head of group economics at the Royal Bank of Scotland, said the last time the economy was so bad was immediately after World War One and World War Two, when GDP fell in double digits.
“Those aside, 2008-12 fall was bigger than any since before Victoria ascended the throne,” he said.
“It’s the worst economic performance since at least 1830, outside of post-war demobilisations,” he told The Daily Telegraph. “It’s worse than the 1920s, it’s worse than the Great Depression.”
He said the economy has been “heading this way for a long time” because of the scale of the problems that came to a head in the 2008 financial crash.
“When you get a downturn that’s rooted in very high levels of indebtedness and stress in the financial system, history tells us that you get recessions that are much deeper and longer, and recoveries that are much weaker,” he said.
The top economist at RBS, which is mostly owned by the Government, said it is difficult to recover when much of the world is facing similar problems.
“It’s the scale of what happened in 2008 but also the build-up to that,” he said. “Compared with other recessions [like in the 1980s and 1990s], this is happening all over the world. There’s not a quick and easy way to export your way out of this.”
However, Mr Boyle said there are “limited options” for the Chancellor to “let up on austerity”.
“The Bank of England has made it clear that it would expect interest rates to rise if the Government let off on austerity,” he said.
“There is an opportuninty for very modest fiscal expansion – more spending or tax cuts – but the Government has to balance that against what might happen to interests.”
Official figures released at 9.30am showed the UK economy did not grow at all last year, because of the poor results for the last three months of 2012.
Experts said the economy shrank in the final quarter as Britain’s manufacturers suffered their worst year since the financial crisis.
Tony Dolphin, chief economist at the IPPR, said there would not necessarily be a triple-dip recession but the economy remains in crisis.
“We will not know for sure whether the economy is back in recession for another three months,” he said. “And even then, history suggests there is always a chance that the GDP figures will be revised and that any recession will be subsequently eradicated from the record.
“What we do know, however, is that the economy is facing a triple crisis: stagnation, debt and imbalance.”
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