David Blanchflower: The recession deniers have gone strangely quiet this month

Economic Outlook: We are in the slowest recovery for a century, with no end in sight

Last week our "do-nothing" economic policy makers did absolutely nothing once again. The Queen's Speech contained exactly zero that could possibly help to return the economy to rude health. Zippo in there to help the more than a million unemployed youngsters who are presumably an essential part of David Cameron's heartless "efficiency" drive. George Osborne is now stultified into inactivity as he put all his eggs into the already failed austerity basket and internal feuding from left and right means he has little room to escape his self-imposed economic straitjacket.

Far from being a master strategy to shrink the state, the austerity Budget now looks to have been a catastrophic strategy that has also slowed the private sector to almost a dead halt.

On Thursday the MPC added to the sense of hopelessness by sitting on its collective hands and allowing their asset purchasing programme (QE2) to come to an end. There may well have been more than one dissenter, but we won't find out for a couple of weeks. My replacement David Miles is the most likely opponent but may have been joined by others including Martin Weale and maybe Adam Posen.

The MPC decided to sit pat despite the fact that we know from the Office for National Statistics that the UK economy is in a double-dip recession.At the same time, the potential downside risks from the euro area have dramatically increased as Greece struggles to form a government and Spain has effectively nationalised one of its major banks. As a result of all this turmoil, the pound has strengthened against the euro, which will serve to push down on UK growth and inflation.

On the morning of the MPC decision, members of the committee would have known the March industrial production numbers, which fell by 0.3 per cent month on month, leaving output 0.4 per cent lower in Q1 2012 as a whole than in Q4 2012, which confirms that the underlying trend remains down. Samuel Tombs at Capital Economics has pointed out that this matches the estimate used in the Office for National Statistics' preliminary estimate of Q1 GDP, which means there is still no reason to expect overall GDP growth to be revised up.

The 0.9 per cent rise in manufacturing output in March merely reflected a bounceback from February's 1.1 per cent fall. In addition, April's CIPS/Markit report on manufacturing, Mr Tombs suggests, points to further falls in output ahead. And then, on Friday, the ONS published data on output for the construction sector, which is collapsing again with new infrastructure work down 15.9 per cent. The ONS says this is consistent with GDP for Q1 of 2012 being revised down by 0.1 per cent. Meanwhile the Nationwide Consumer Confidence Index fell by nine points in April. The recession deniers have become strangely quiet.

As is clear from the chart above, which shows how the major recessions have evolved, we are in the slowest recovery for a century, with no end in sight. There is no recovery, period. In output terms the Great Depression had restored all its lost output in 48 months whereas under the Coalition not even half has been restored over the same time period. In both the 1930s and the current recession, output dropped by approximately 7 per cent but we still have more than 4 per cent to be recovered. The European Commission this week forecast that output would grow only 0.5 per cent in 2012 and 1.7 per cent in 2013, so that would mean after 70 months output would still be below the 2008 starting level.

The Great Recession has now transmogrified into an L-shape and shows no sign of being over any time soon. It hasn't helped that in every Inflation Report forecast since August 2008, the MPC has continued to insist that recovery will be V-shaped.

Here are a couple of examples of the downward revisions of the MPC's growth forecasts. In August 2010, the MPC forecast that annualised median GDP growth in Q1 and Q2 2012 with £200 billion of quantitative easing and constant interest rates at 0.5 per cent would be 3.1 per cent and 3.2 per cent respectively. By August 2011, it was forecasting 2.0 per cent and 2.2 per cent. But by February 2012, after an additional £125bn of QE, the forecasts had dropped to 1.1 per cent and 0.7 per cent respectively. As noted above, the preliminary estimate for Q1 of this year is -0.8 per cent annualised, which looks headed even lower. Expect further big growth-forecast downgrades from the Bank this week and for many months to come as growth disappoints

The MPC focused on targeting inflation, expecting that would bring stability, and look what happened. Now is the time to consider switching to a dual mandate that would includes growth, which would give much needed flexibility. I am now of the view that the Treasury would probably have done a better job setting interest rates than the MPC achieved. Between 1997 and 2007, the path of rates would have been approximately the same. Whichever of the two bodies had set rates would have been driven by market discipline.

Interest rates would probably have been higher in 2007 as the housing boom was raging and house price to earnings ratios approached unsustainable levels. Alistair Darling has made it clear he would have cut rates earlier in 2008 if it had been left to him, and there is no reason to disbelieve him. I suspect if Osborne was making the decision right now, he would – correctly in my view – have done more QE.

The Chancellor must be having second thoughts about giving away all that power to the Bank of England. I will report back next week on the May Inflation Report, which should make interesting reading. Still no growth plan.


David Blanchflower is professor of economics at Dartmouth College, New Hampshire, and a former member of the Bank of England's Monetary Policy Committee

Mick Jagger performing at Glastonbury
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Germany's Andre Greipel crosses the finish line to win the sixth stage of the Tour de France cycling race over 194 kilometers (120.5 miles) with start in Arras and finish in Reims, France
tour de franceGerman champion achieves sixth Tour stage win in Reims
Arts and Entertainment
Characters in the new series are based on real people, say its creators, unlike Arya and Clegane the Dog in ‘Game of Thrones’
tv'The Last Kingdom' is based on historical events
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

JQuery Developer (JQuery, C#, front-end, JQuery, UI, Tomcat)

£40000 - £45000 per annum: Harrington Starr: A Global Financial Service Organ...

Linux Systems Administrator - UNIX, Linux, Shell, Bash

£50000 - £60000 per annum: Harrington Starr: Linux Systems Administrator - UNI...

UNIX Systems Administrator - Oracle DBA, UNIX, Scripting

£40000 - £45000 per annum: Harrington Starr: UNIX Systems Administrator - Orac...

Linux Systems Administrator - (Support, Linux, UNIX)

£40000 - £55000 per annum: Harrington Starr: Linux Systems Administrator - (Su...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil