Hamish McRae: There is an inconsistency, and it's probably the GDP

Economic Life: Fretting about a double dip when the evidence says there wasn't one is plain silly

Recession, higher inflation – but falling unemployment, very low pay rises and 100,000 more jobs. It does not quite hang together, does it? Yesterday saw two big chunks of new information about the British economy, the monthly labour statistics and the Bank of England's quarterly inflation report. So as a welcome relief from the anguish across the Channel, let's try to see what can sensibly be said about what seems to have been happening here.

There is a genuine inconsistency here. Assuming there has not been a sharp fall in output per person, then either the employment figures or the previously published GDP figures must be wrong. Since the labour force surveys have in the past been much more reliable than the GDP ones, the commonsense conclusion is this: if more people are working and more hours are being worked then we cannot be back in recession. All this earnest debate about a double dip is therefore based on a false premise.

We will have to wait another couple of years before this is confirmed but I am pretty confident that will be the case. Growth has been disappointingly slow and I suspect there may well have been a quarter of negative growth some time last year. But recession, defined as two quarters of negative growth? That cannot be right.

This certainly seems to be the working assumption of most of the private economic forecasters, and now the Bank of England seems also to take that view. You can make a guess at what it thinks has been happening and what it expects to happen by looking at the central point of its fan chart on growth, shown here. The graph also shows the official data, and as you can see, the ONS thinks year-on-year growth has stopped. The rise in the early part of last year has been offset by the fall in the final quarter and the first quarter of this year.

The Bank, however, takes a somewhat more optimistic assessment of what has happened and I have highlighted the centre point of its fan chart to show that. This would be consistent not only with the labour force survey but also the reports from the business community and from the Bank's agents.

You can see from the next graph that the hours worked in the economy seem to have picked up again. The figure has not risen as much as one might expect and the explanation for that is probably that many of the jobs being added are part-time. In a nutshell, the private sector is taking on labour faster than the public sector is shedding it, but it is replacing full-time posts with part-time ones and with self-employment.

That points to another fascinating detail. As you can see from the third graph, the number of government employees has been falling pretty steadily, while the number of self-employed has been climbing equally steadily. It is true that many of the self-employed are working part-time and for many this may be an involuntary shift: people working for themselves because no one else will take them on. But the fact remains that if this trend were to continue, it is plausible that in a few years there will be more self-employed than state-employed. On my quick tally this would be the first time this has happened since the Second World War, a seismic social shift with consequences for how we organise everything from pensions and labour legislation downwards.

Back to the big numbers of the economy, and the pointless debate about the alleged return to recession. There are many reasons to be worried about the slow nature of the recovery and about what might happen next. But fretting about a double dip when the bulk of the evidence says there wasn't one is plain silly. So now to the genuine concerns.

There are at least three. First and most obviously, there is inflation. Again and again the Bank's forecasts have been wrong and after a while you begin to wonder whether inflation will ever get back to target. As of now the UK Government has been able to finance itself at ever-cheaper rates and it is almost as though investors have stopped caring about UK inflation. So there is no market pressure to do anything. Real incomes are being squeezed relentlessly and so ordinary individuals have reason to want to put pressure on the authorities. Not only are living standards being compressed but real growth is slower as a result. But their voice is not really being heard against the noise from the business lobby for continued low interest rates and quantitative easing.

But at some stage, unless inflation comes down pretty fast, things could suddenly move against the country. Were we to lose our safe haven status and government funding costs rose, there would be a problem indeed.

The second big worry is whether the Government is itself inhibiting growth, not by correcting the public deficit, which has to be done, but rather by detailed anti-growth policies.

It might seem shocking to say that the Government is deliberately damaging growth but that seems to be the view of a fair portion of the business community. This is not the place to go into the detail of their complaints, but trying to run a country without the broad support of the business community is tough, even in good times.

Finally there is Europe. We can have no influence over the outcome of the eurozone's troubles but we are affected by them. The only possible thing to do, and mercifully we are doing it, is to prepare for any outcome. It may be implausible that Greece dumping the euro would do serious damage to the world economy. As Jim O'Neill of Goldman Sachs points out, in terms of economic activity China creates another Greece every four months. But it could do a lot of damage to Europe's banking system, and we might be caught in the crossfire.

PROMOTED VIDEO
Life and Style
techYahoo Japan launches service to delete your files and email your relatives when you die
Life and Style
Child's play: letting young people roam outdoors directly contradicts the current climate
lifeHow much independence should children have?
Arts and Entertainment
Tycoons' text: Warren Buffett and Bill Gates both cite John Brookes' 'Business Adventures' as their favourite book
booksFind out why America's richest men are reading John Brookes
News
i100
Arts and Entertainment
<p><strong>2008</strong></p>
<p>Troubled actor Robert Downey Jr cements his comeback from drug problems by bagging the lead role in Iron Man. Two further films follow</p>
filmRobert Downey Jr named Hollywood's highest paid actor for second year running
Life and Style
Dale Bolinger arranged to meet the girl via a fetish website
life
Property
Sign here, please: Magna Carta Island
propertyYours for a cool £4m
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Training Programme Manager (Learning and Development)-London

£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

Training/Learning and Development Coordinator -London

£28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Project Manager - ETRM/CTRM

£70000 - £90000 per annum + Job Satisfaction: Harrington Starr: Project Manage...

Day In a Page

Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn
Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Meet the man who doesn't want to go down in history as the country's last Scottish Secretary
Legoland Windsor's master model-makers reveal the tricks of their trade (including how to stop the kids wrecking your Eiffel Tower)

Meet the people who play with Lego for a living

They are the master builders: Lego's crack team of model-makers, who have just glued down the last of 650,000 bricks as they recreate Paris in Windsor. Susie Mesure goes behind the scenes
The 20 best days out for the summer holidays: From Spitfires to summer ferry sailings

20 best days out for the summer holidays

From summer ferry sailings in Tyne and Wear and adventure days at Bear Grylls Survival Academy to Spitfires at the Imperial War Museum Duxford and bog-snorkelling at the World Alternative Games...
Open-air theatres: If all the world is a stage, then everyone gets in on the act

All the wood’s a stage

Open-air productions are the cue for better box-office receipts, new audiences, more interesting artistic challenges – and a picnic
Rand Paul is a Republican with an eye on the world

Rupert Cornwell: A Republican with an eye on the world

Rand Paul is laying out his presidential stall by taking on his party's disastrous record on foreign policy
Self-preservation society: Pickles are moving from the side of your plate to become the star dish

Self-preservation society

Pickles are moving from the side of your plate to become the star dish
Generation gap opens a career sinkhole

Britons live ever longer, but still society persists in glorifying youth

We are living longer but considered 'past it' younger, the reshuffle suggests. There may be trouble ahead, says DJ Taylor