Friday, June 03, 2011
Overdoing the gloom
Posted by David Smith at 06:00 PM
Category: Thoughts and responses

The central debate is about whether Britain's fiscal tightening is killing the economy and the comparison is made with America's more relaxed attitude towards its budget deficit (which is causing concern at the rating agencies).

Looking at the latest numbers, you might conclude that it was America which is introducing tough, growth-stunting measures, rather than Britain. Most recent US data has been notably weak, culminating in today's payroll numbers, which showed a rise of only 54,000 in non-farm jobs in May and a rise in the unemployment rate from 9% to 9.1%.

What about Britain's slowdown? This week we've had a fall in the manufacturing purchasing managers' index, a rise in the construction PMI and a small drop in the service-sector index. All three are consistent with expansion. Markit, which produces the numbers, says they are consistent with only a 0.3% second quarter rise in gross domestic product.

That may be understating it, given that the Office for National Statistics has to apportion construction growth somewhere, following its strange first quarter numbers. Given that the first half of 2011 was always the period of greatest risk in the recovery, however, 0.5% followed by 0.3% wouldn't be that disastrous.