The problem with the provisional figure for GDP in the last three months of 2010 is it was a long way short of the consensus. That means many people have to explain and change their viewpoint. It will mean a greal deal of politics will be generated around it.
Labour and their friends in the media will say it just proves that you should not cut public spending too far and too fast. Their analysis and conclusions will be miles out. Any proper analysis of the figures shows public spending rose swiftly in the last three months of 2010, so on their analysis the economy should have done better. There have been no overall cuts so far.
Establishment supporters of the Bank of England will say it just goes to show how they needed to keep interest rates on the floor, and might need another round of quantitative easing. They need instead to answer how come inflation is so high if output is so depressed, and answer why the last large QE and permanently low short rates have not done the job.
The government says that it is mainly a weather related incident. The damage occurred in December, when ice and snow closed down service businesses, made life difficult for transport and construction, and stopped people getting to shops and restaurants. They have on their side the fact that manufacturing output accelerated, rising faster than in the fourth quarter. Energy also rose. Most planes were grounded for many days, train services were much disrupted and even cars and vans found it difficult to get around.
On any analysis the figures are disappointing. There may be a bounce in January as last January saw very bad weather. All surely can agree, however, that we need more growth for the private sector led recovery which is central to the government’s economic policy. The government needs to listen carefully to those who say we need a deregulatory and tax package that promotes enterprise and job creation, and a banking system that can deliver more credit for worthwhile projects including the construction of new power stations, roads, homes and factory capacity. We also need to work out how to snow proof more of our economy, just in case we are in for more bad weather.