Sean O'Grady: I'm sorry Sir, but the dog ate my quarterly inflation and GDP forecasts

Mr King has been very unfortunate indeed; it's just hard to believe that anyone could bequite so unlucky
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The Independent Online

Are we being too gloomy about the recovery? By we, I mean the media, principally. Being of an Eeyore-ish disposition, I have to confess to having done my fair share to spread gloom over the past few years, though I have to say I am in distinguished company, and events have usually more than matched my pessimism.

When the Governor of the Bank of England, Mervyn King, tells us that we are going through the longest squeeze on living standards since the 1920s and face a choppy ride ahead, the media cannot be accused by the authorities of being unduly gloomy. Besides, the media view of the economy has had its ups and downs as well, part mirroring reality, part, perhaps, creating it.

For the public good I publish here some research of my own on the use of economic buzz-terms across Britain's rich variety of national newspapers, with the exception of the Financial Times, mainly because of its specialist nature. It has been mined from the LexisNexis database, and reveals some interesting trends.

Obviously this is what Peter Snow would call "just a bit of fun", but in so far as the media play any role in moulding public opinion, you have to take it a little seriously. And there are certainly some crude patterns to be discerned in movements in the incidence of terms such as recession, recovery, double-dip and stagflation, and real levels of output, though I make no extravagant claims as to the direction of causation.

The use of the dread word recession, for example, follows the pattern of many other leading indicators in the run-up to the worst recession in three-quarters of a century. Having been background noise at the end of the boom in 2007, it spiked at the start of 2008. With all the year-ahead prices predicting what was then seen as the slight risk of a mild, short-lived downturn, the R-word even subsided after that point before soaring in October 2008. So after Lehman Brothers collapsed in mid September and virtually every economic indicator in the world fell off the proverbial cliff, from Brazilian new car sales to Japanese share prices, our media was filled with talk of recession, peaking in January 2009 as evidence of the scale of the recession and the mess the banks were in deepened. Since then, mention of recession has steadily declined, and the word recovery overtook recession as late as February 2010, just ahead of the election and just after the Office for National Statistics declared the contraction in output over, at least temporarily.

Even more striking as a media phenomenon is the rise and fall of double-dip in the national discourse. It emerged pretty much from nowhere as 2010 opened, and the political debate about whether early spending cuts would trigger a second downturn heated up as the general election came and went, though it took until August last year to peak. George Osborne's emergency Budget may have prompted that misery zenith, and his terrifying Comprehensive Spending Review was, oddly, more instrumental in pushing it back down again. George Osborne's spin doctors might take this as evidence that the Coalition's plans to fix the deficit and secure financial confidence in the UK reassured us so much we stopped taking about the double-dip.

In any case, chatter about the double-dip certainly died off rapidly last year, though it is showing signs of jumping back up again, especially after the shock fourth quarter GDP data was published at the end of last month and the hyperactive efforts of Ed Balls, the newly-installed shadow chancellor.

Much to my chagrin, the conflation stagflation, which I like to think I pioneered, hasn't really caught on, although it is approaching the sort of levels seen in 2008, the last time we had such a pernicious combination of stagnant output and rising inflation. The media, once again, seem to be following economic events rather than shaping them, even though some of us with long memories have done our best to revive memories of the Seventies.

Which brings me neatly to last week's meeting of the Monetary Policy Committee; next week's Bank of England Inflation Report; and revised, presumably higher, inflation forecasts and what may be a choppy ride for Mr King and colleagues facing the press on Wednesday. For the combination of stagnant output and rapidly rising inflation is where we are now.

We may even, as in the Seventies, have mistaken mass unemployment for true spare capacity. In the increasingly heated debate among economists about the (unknowable) margin of spare capacity in the economy, it may be that we have misinterpreted our obviously empty, underused shops, factories and offices – and most obviously 2.5m unemployed – for useful economic resources which will quickly come back into use as demand picks up. They may not, because our economy, as in the Seventies, is actually much less internationally competitive than we fondly imagined it to be. After all, we cannot export the services of our army of underemployed estate agents no matter how low the pound is.

Anyway, inflation will be a ticklish issue for the Bank for the foreseeable future, as it has been for a while now.

I sometimes wonder what Mr King must have been like as a grammar schoolboy in Wolverhampton. Keen on cricket and Aston Villa, I dare say, and obviously smart and studious, perhaps displaying early leadership qualities. I very much doubt he ever had to peer up though pebble glasses and sheepishly tell a schoolteacher that he left his economics homework on the bus or that the dog ate it. Yet that is very much the position he has been in for the past year or more; having to write letter after letter of apology to the Chancellor for missing the 2 per cent target yet again, and having to tell MPs, the Press and the public that the Bank has missed its inflation forecast because of factors outside his control. Inflation around 4.5 per cent this week will trigger another such letter. The dog ate my inflation forecast you might say. Except that the dog really did eat it – a reason rather than an excuse (one of my teachers explained the difference to me once, when canine intervention prevented production of an essay).

So Mr King is in an odd place. External factors – VAT hikes, the depreciation of sterling and soaring world commodity prices – have been responsible for the bulk of the spike. Mr King's excuses are proper reasons. No one has proved otherwise. Without them inflation would be near 2 per cent. Most domestic measures of inflation, and crucially the labour market, show few signs of inflation igniting a fiery wage-price spiral of the type we did suffer in the stagfaltioanry Seventies. Expectations have been going up, for sure, but that doesn't mean anyone is able to extract a pay raise from a stubborn employer, and that is the point. The money supply, unlike in 1972 to 1976, say, is depressingly flat. So Mr King has been very unfortunate indeed; it's just that it is hard for us to believe that anyone could be quite so unlucky.



Additional research by Louise Begbie

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