Cost of recession 'running at pounds 15bn a year'

Click to follow
The Independent Online
THE RECESSION has cost the economy at least pounds 15bn a year in lost output since 1990, according to figures issued by Gordon Brown, the shadow Chancellor, yesterday.

Mr Brown urged Norman Lamont, Chancellor of the Exchequer, to snatch the European initiative with a call for co-ordinated cuts in interest rates at this week's meeting of European economic and finance ministers in Bath.

The ministers are due to gather on Friday night for a full-day session at the city's assembly rooms on Saturday.

One of the items on the agenda will be 'the economic situation in the EC', which could include contingency plans for a No-vote in this month's French referendum on the Maastricht treaty, and the strains it would impose on European exchange rate mechanism (ERM) parities.

Any renewal of speculation against sterling this week will again be met with determined resistance from the Bank of England, using its reserves in an attempt to avert a damaging increase in domestic interest rates.

The pound faces a bumpy week ahead of the German Bundesbank meeting on Thursday. Sterling gained almost a pfennig against the Deutschmark in thin trading yesterday morning, but later closed in Paris just 0.16 pfennig higher at DM2.7889, still uncomfortably close to its ERM floor of DM2.7780. Trading in London was closed for the bank holiday.

Mr Brown backed up yesterday's call for interest rate cuts in the European Community with an analysis of the recession, showing that the United Kingdom had the worst record in the EC for growth, manufacturing and industrial production, and investment.

'Gross Domestic Product (GDP) has fallen 4.1 per cent below its peak in the second quarter of 1990, a fall of almost pounds 15bn a year, at 1985 prices, since the recession began,' he said.

But that annual figure could underestimate the cumulative loss in GDP output. The same analysis showed that there had been an overall loss of 11.5 per cent in GDP between the second quarter of 1990 and the first quarter of this year - worth more than pounds 41bn in terms of output at the 1985 prices on which the GDP index is based.

The latest official figures published by the Organisation for Economic Co-operation and Development showed that while UK output fell by 3.2 per cent between the second quarter of 1990 and the fourth quarter of last year, German GDP had risen by 3.6 per cent, and French and Italian GDP had increased by 2.2 per cent.

Mr Brown said manufacturing investment, which had been worth pounds 3,241m in the first quarter of 1990, was down to only pounds 2,333m by this summer - a fall of 28 per cent. 'These are the worst figures for investment collapse since 1932,' he added.

'It is now clear that the Government must press for co-ordinated action in Europe, backed by investment measures to expand the economy at home.'

Mr Brown continued: 'Britain has a unique responsibility in this matter, not only because it is in the weakest economic position, but also because it is the current president of the EC and has the power to take an initiative of this kind. It is up to the Chancellor of the Exchequer to do something about it.'