The latest figures show a further fall in manufacturing and construction output in November 2012. An improvement in oil and gas output provides some modest offset to the bad news. Many forecasters now think the UK economy fell again in the fourth quarter of 2012.
This is quite a contrast to the USA. There they have made bigger cuts in public spending at the state level and have agonised over the fiscal cliff at the Federal level. Levels of debt and deficit are not that different between the two countries. They have continued to create more money through the Fed, just as the UK has done through the Bank of England. The US economy is growing at around 2% per annum.
There are three big differences between the two economies that probably account for the better US performance. The first is the state of the banks. The second is the price of gas and general fuels. The third is technology.
The single most important reason why the US is making more progress rests with the banks. The US banks took more action sooner. US property prices fell further faster. More of the bad debt was sorted out and cleaned up. US banks were made to take more capital, and most have now repaid the special money they received from the authorities. US money supply and credit is growing at a better pace as a result. Property prices have started to rise again after a very large correction. There are more mortgages available.
The UK has still not worked through enough of the bad debts and the difficult property lending. RBS is far from fixed. Such a large bank in such a condition retards the UK economy.
Cheaper energy is giving a big boost to US industry which is lacking in the UK with dear energy baked into EU and domestic policy. Quicker exploitation of shale gas is also adding to US output.
The US is still the world leader at applying the technology of the digital revolution to the products and services of the world.
The UK needs to catch up. Mending RBS would be the single most important thing to speed that up. Asset sales and controlled break up, creating new better financed banks that can compete and offer loans would provide a big boost to the UK economy. Cheaper energy is also vital for success.