Too wet to build much

 

         The second quarter provisional figures for the UK economy’s output show a becalmed  services sector, little changed overall on the previous quarter, and over 1% up on a year earlier. The smaller construction sector has had a second sharp quarter’s fall, along with a lesser decline in manufacturing and mining.

           Within the large services sector, once again rising real public spending makes a positive contribution to measured output. Financial and business services are also up, though now showing slow growth.  Transport and communications are down.

          The preliminary figures are based on estimates for June which assume poor performance resulting from the incidence of two bank holidays with the additional time off for Jubilee.  The sharp fall in construction so far this year  reflects survey evidence, and is probably accounted for by three main changes. The first is the ending of the major Olympics contracts. The second is the impact of the outgoing Labour government’s cuts in public capital spending, which were largely endorsed by the incoming  Coalition government. The third is the atrocious weather in the second quarter, which will have delayed work on many sites.

          Overall the economy is down 0.9% on a year ago. It leaves us still 4.5% down on the peak prior to the 2008-9 crash. Public current spending remains high. Private demand is less buoyant, where the tight tax and price rise squeeze has left consumers short of cash to spend. Falling inflation should help and is much needed.  The construction sector needs more orders. This is why the government is pursuing a number of schemes to try to get private finance into sensible projects.

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53 Comments

  1. A.Sedgwick
    Posted July 25, 2012 at 4:32 pm | Permalink

    “This is why the government is pursuing a number of schemes to try to get private finance into sensible projects.”

    I would suggest a serious reduction in and simplification of personal and corporate tax combined with real cuts in spending would have seen growth in our economy.

    There is a growing opinion that regard Cameron and Osborne as dangerously out of their depth. The Budget growth figures Osborne trotted out in Brown speak over the past two years were clearly fantasy and the planned escalation of debt to 2015 with these figures is alarming enough without flatlining growth. It is very difficult to be anything but pessimistic about this country’s economic future without the emergence of a real political leader, the nearest to which we have at the moment is Nigel Farage.

    • waramess
      Posted July 25, 2012 at 5:57 pm | Permalink

      Certainly Farage wth all his warts seems to be the person the Conservatives should invite back into a senior and influential position if they wish to stand half a chance of staying in power.

      Reply: The fact that he has been unable to win a Parliamentary seat makes that impossible.

      • Caterpillar
        Posted July 25, 2012 at 8:13 pm | Permalink

        (I don’t go along with this but) could this be done by a peerage?

      • Jerry
        Posted July 25, 2012 at 8:43 pm | Permalink

        John. It wouldn’t be the first time a party has ‘found’ a safe seat for a must have politician! Not that I think that there is any appetite in either party for such a course of action, quite the opposite in fact, UKIP probably stand more chance of inheriting sitting MPs (from either side of the house)…

      • Boudicca
        Posted July 25, 2012 at 9:30 pm | Permalink

        He’s found it impossible to win a seat because under FPTP it IS virtually impossible for anyone but LibLabCON to win (in England).

        Funding, media exposure and the machines of LibLabCON make it almost impossible to break through.

        But the fact is, he is the most inspirational orator this country has produced in decades. He talks ‘normal’ so that the C2DEs understand and relate to what he is saying and there isn’t a shred of PR spin about him.

        He’s head and shoulders above Cameron, Miliband and Clegg and he has my vote. I’m not voting for the College Kids currently ruining the economy, or the rabble that wrecked it in the first place.

        We need change in this country – starting will getting out of the EU – and Farage is the man to deliver it.

        Reply: Why then did an independent pro Euro and pro EU candidate come ahead of him at Buckingham? Surely he should have been able to get ahead of him?

        • Jerry
          Posted July 26, 2012 at 8:39 am | Permalink

          Reply: Why then did an independent pro Euro and pro EU candidate come ahead of him at Buckingham? Surely he should have been able to get ahead of him?

          Wrong seat, wrong battle, split votes, I suspect.

          Not forgetting that the Euro problem, if not the whole EU issue, has got a lot worse since May 2010…

      • alan jutson
        Posted July 26, 2012 at 8:04 am | Permalink

        reply to reply

        Whilst I understand what you are saying, and the reason I believe you say it John, it does not stop the government inviting all sorts of non elected advisors to make a contribution at the moment does it.

        Nick Clegg has 14 of them thinking for him if press reports are to be believed, all paid for by the taxpayer.

        The Conservatives could do no worse than to give Nigal Farage a safe seat to fight at the next by election, put him in charge of strategy (Osbourne has lost it, or rather never had it in the first place) and then follow some of your plans by making you Chancellor.

        Unfortunaterly none of this is going to happen,and even if it did things would not turn around quick enough before the next election.

        Shame, we can always dream.

      • waramess
        Posted July 26, 2012 at 9:46 am | Permalink

        JR if this is the only gating factor then he can be given a safe by election seat to fight.

      • Christopher Ekstrom
        Posted July 26, 2012 at 1:25 pm | Permalink

        Touché! Remember that remark JR for the days ahead.

    • Single Acts
      Posted July 26, 2012 at 6:25 am | Permalink

      “This is why the government is pursuing a number of schemes to try to get private finance into sensible projects.”

      When I hear a normally sensible MP come out with stuff like this I weep. The implicit logic is

      (a) tax firms and coercively take their cash
      (b) spend it on something or other

      hey presto, growth. A better alternative

      (a) don’t tax ’em
      (b) let ’em spend the money on what they as entrepeneurs judge to be good for their business. Those who get it right create wealth, those who get it wrong aren’t around for long.

      Otherwise we end up with any number of white elephant projects and the law of unseen consequences remains unseen (ie you see the jobs that building the dome created but you don’t see all the real jobs the taxation to pay for it created).

      • uanime5
        Posted July 26, 2012 at 4:31 pm | Permalink

        The problem with taxing companies less is that what’s good for business isn’t good for society. I can’t ever recall a company deciding to build new roads, ports, hospitals, or schools despite these being very important to society. Instead companies prefer to spend any extra money on bonuses for senior executives and boosting their profits; both of which offer society very little benefit.

    • lifelogic
      Posted July 26, 2012 at 6:55 am | Permalink

      I agree fully we do not want silly restrictive scheme. RBS that they own is pulling back huge amount of funding from property lending so developers put developments on hold what else do they expect?

      If they just get them lending sensibly and not snatching it back it would be a good start.

      • uanime5
        Posted July 26, 2012 at 4:34 pm | Permalink

        I read about another way banks increase lending without having to spend any money.

        “My brother-in-law owns a financially sound, road-haulage business. He has a needed overdraft with a local branch of a national bank; his limit has just been halved. So was that of a friend who had similar problems.

        “He found two colleagues, running cash-rich companies which never use their overdraft facility, who had their overdraft limits doubled. Thus do the banks meet government lending targets by lending less to those who need it while “lending” more to those who don’t. Clever, eh?”

        http://www.independent.co.uk/opinion/letters/letters-the-nightmare-of-blairs-return-7959906.html

  2. forthurst
    Posted July 25, 2012 at 5:32 pm | Permalink

    “There is a growing opinion that regard Cameron and Osborne as dangerously out of their depth.”

    Cameron claimed that Oliver Letwin acting as his ‘mainframe computer’ absolved him of thinking about policy. I know that ‘mainframe computer’ is keen to import Indians, possibly rather more so than the typical Tory voter who is English. ‘Mainframe computer’ was shadow chancellor under ‘something of the night’ so he possibly imagines he can do Osbornes’s job as well.

    • forthurst
      Posted July 25, 2012 at 5:34 pm | Permalink

      ..intended as a comment on Mr Sedgwick’s post.

  3. waramess
    Posted July 25, 2012 at 5:45 pm | Permalink

    So, I wonder where this leaves us?

    Spending on the Olympics was in truth an Extraordinary item, and something that will not be repeated. It will not then be automatically replaced and the economy should be seen with this factor stripped out.

    Inflation has nothing to do with rising prices but with monetary policy which will affect prices overall when there is more money introduced into the economy than the demand available to absorb it and is entirely within the control of the government, whether they understand it or not.

    And then we have the weather.

    Add to this the crass incompetence of Osborne and his team at the Treasury and the Keynesian/Monetarist influence of the Treasury manderins and there we can probably see the cause of the negative growth.

    There is no answer to the recession and no way of preventing a depression whilst such people are pulling the strings. A bit of monetary magic might have seemed to work when government spending was less than 40 percent of GDP but those days have long gone.

    Frankly the prospect of the Government persuading private money to back public works is pie in the sky unless they are willing to chuck large sums of public money at it so maybe they should just get off the pot and let someone else have a go.

  4. Electro-Kevin
    Posted July 25, 2012 at 6:00 pm | Permalink

    A bit of cash-in-hand would help.

    VAT at 20% is a drag.

  5. alan jutson
    Posted July 25, 2012 at 6:46 pm | Permalink

    All those foreign workers will now be looking for alternative contracts now the Olympic sites have been completed !

    • Mark
      Posted July 25, 2012 at 9:15 pm | Permalink

      They’ll be remitting their earnings and applying for benefits.

      • alan jutson
        Posted July 26, 2012 at 8:09 am | Permalink

        No Mark

        They will be either

        Working for cash payments at low rates and will crucify legitimate businesses who at the moment pay tax.

        They will go back to their own Country’s.

        Or

        They will do as you suggest.

  6. Brian Tomkinson
    Posted July 25, 2012 at 7:31 pm | Permalink

    JR: “rising real public spending makes a positive contribution to measured output.”
    It would be good if we could have a stop put to the dishonesty of both the government and the opposition. Both pretend that current public spending has been cut when in fact it is still increasing. What was it you wrote the other day? – “All you need is truth” .
    Perhaps when we start to be told the truth, reaching a satisfactory outcome just might be a possibility.

  7. Caterpillar
    Posted July 25, 2012 at 8:33 pm | Permalink

    Whilst I agree with the Chancellor that the Coalition and UK’s aim should be to remove the deficit, and to repair disfunctional elements of the economy (which should include the link between savings and investement), I am surprised that the Chancellor, Chief Secretary to the Treasury, Business Secretary and Governor of the Bank of England appear unable to clearly list the constraints on the UK economy and thus start to act upon them.

    In the meantime,

    “tight tax” – simplify taxes, and dump/reduce the employers’ NI contribution (even if revenues have to be raised elsewhere).

    “falling inflation should help” – immediately stop the BoE/MPC’s absurd attempts at keeping inflation high (and similarly currency weakening to rely on other economies &, labour rather than capital).

    “construction sector needs more orders” – further ease and speed-up planning, don’t engineer another residential property bubble, start the infrastructure projects now (i.e. transport for monopoly breaking and to signal locations into which to invest – is funding possible now borrowing costs currently low and/or by a cap to total entitlements in – encourage crowding in).

    Ensure that the media are used for complete and clear reporting, not a soundbite battle.

  8. Martyn
    Posted July 25, 2012 at 8:54 pm | Permalink

    To my mind the frightening thing is that Mr Cameron became an MP in 2011 and a scant 4 years later became the Conservative leader and a few years later, Prime Minister.

    How on earth did it come about that a politician with so little experience of Parliament and governance and, so far as I can determine, with no experience of the employment or business worlds, having seemingly been nothing else than a a practised spin-doctor, ended up ruling (or should that be ruining?) this nation of ours?

    Truly, I despair…..

    • zorro
      Posted July 25, 2012 at 9:48 pm | Permalink

      I guess that they were entranced by the perceived success of Blair….hence the ‘heir to Blair’ and the fact that he was the alternative to Brown….

      zorro

    • Bob
      Posted July 25, 2012 at 10:17 pm | Permalink

      “A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself. For the traitor appears not a traitor; he speaks in accents familiar to his victims, and he wears their face and their arguments, he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist. A murderer is less to fear.”

      ― Marcus Tullius Cicero

      • Christopher Ekstrom
        Posted July 26, 2012 at 1:15 pm | Permalink

        An apt selection. Unlike Hadrian who smashed the tax debts to begin his reign our PM raised taxes when possible & cut (that means a real decrease, Miss Hanson) goverment spending as little as possible.

        UKIP will cut taxes & eliminate wasteful, often absurd, spending. The howls of anger will be music to our ears. Riots: Right, that’s what mounted police are for! As one Pealer put it when some lisping softy asked him about the horros of the poll tax riots: “Wouldn’t have missed it for the world”.

    • forthurst
      Posted July 25, 2012 at 11:00 pm | Permalink

      …and in the main, he surrounded himself with equally inexperienced colleagues so as to avoid the ‘taint’ (allegedly) of those who had served with a three times elected PM or a one times elected PM with a rather lower record of success. Perhaps one Bilderberger is all you need?

      • APL
        Posted July 26, 2012 at 8:13 am | Permalink

        foxhurst: “Perhaps one Bilderberger is all you need?”

        Good old ‘cheeky chappie’, lovable old toff, Ken?

        Talking of traitors, I see the BBC were broadcasting the ‘puff piece’ of those jolly old school chums who were so revolted by fascism, that they embraced communism, and for some inexplicable reason betrayed our country to the Soviets.

        Just goes to show that even a first class education can be an utter waste of time and effort.

    • APL
      Posted July 26, 2012 at 8:08 am | Permalink

      Martyn: ” with no experience of the employment or business worlds, ”

      But but but, he was an advertising executive, good at presenting untruths. Turns out he isn’t even much good at that.

    • Christopher Ekstrom
      Posted July 26, 2012 at 1:23 pm | Permalink

      Your despair is shared by every loyal Englishman. This is a crisis beyound the scope of Baroness Thatcher’s assent (God Bless her). Perhaps there is another woman out there that has the spine our male MP’s evidently lack. Indeed there’s not even a Hesletine (vile sod) to sort out Cast Iron…

  9. Simon
    Posted July 25, 2012 at 9:31 pm | Permalink

    Perhaps someone should send Osborn an introductory macro-economics text.

    His monetarist policies reached their limit 18 months ago, and his less than half arsed fiscal stimulus “loan guarantees” will do nothing; there’s plenty of cash about, but nobody thinks anything is worth investing in because there’s no demand.

    I guess it’s not like serious economists have been telling him this for the last two years… oh, hang on, yes, yes they have, repeatedly, at length. Even the IMF has joined in. The same IMF that told G. Brown in 2001 that he was borrowing too much and stoking the coals of the boom.

    • A different Simon
      Posted July 26, 2012 at 1:14 pm | Permalink

      Osborne seems more normal than those other toffs ; the supremely self obsessed Cameron and Clegg .

      Being a chancellor of the exchequer in a Govt headed up by those two must be a particularly thankless task and seeing Teresa May as Home Secretary can’t help .

      I get the impression that Osborne has seen through all the fake greenery but is outnumbered when he insists that the UK should not unilaterally disadvantage itself by trying to cut carbon dioxide emissions more quickly than other countries .

      I reckon Osborne has a fair idea of some of the steps that need to be taken to invigorate British Industry but knows he is wasting his time with those two dreamers at the helm .

      I suspect IDS , Frank Field , Vince Cable and Michael Gove also know they are wasting there time for the same reason .

    • uanime5
      Posted July 26, 2012 at 6:41 pm | Permalink

      Well if Osborne fixed the economy the Conservatives wouldn’t be able to justify slashing the public sector because the economy is so bad. So expect further problems until the public sector has been outsourced (except MPs) and the economy has collapsed.

  10. Mark
    Posted July 25, 2012 at 9:32 pm | Permalink

    The emphasis needs to be on “sensible”.

    Too many projects are just someone’s pork or vanity, or are otherwise ill-considered – which is why the private sector hasn’t initiated them. One of the best things the incoming government did was to call a halt to the waste that was the Building Schools for the Future programme that planned to rebuild every school in little more than a decade as if buildings had only a ten year life.

    Much of our motorway network needs repair, and there needs to be a better route from the East Anglian ports to the Midlands. Some of the other projects touted recently are of more dubious value.

  11. David John Wilson
    Posted July 25, 2012 at 10:26 pm | Permalink

    If any tax reduction is to be used as a stimulous, VAT is the wrong choice. The solution needs to be something that will stimulate small companies preferably improving their cash flow and reducing their need for the unavailable borrowing. An ideal choice would be a reduction in employers’ NI. This has the advantage that it can be directed at also improving employment prospects in particular groups where unemployment is a major problem. I would thus propose reducing employers’ NI contributions for the under 25s.

    • Caterpillar
      Posted July 26, 2012 at 8:27 am | Permalink

      I think many agree that employers’ NI contribution is problematic, but being ageist and putting another complication into the tax system seems much more difficult to justify.

    • Jerry
      Posted July 26, 2012 at 7:30 pm | Permalink

      Except that a reduction in VAT tends to cause a raise in end consumer demand (assuming that they are no so scared spend), something most small companies need also, perhaps any stimulus needs to be split between both a VAT cut and employer NI?

  12. JimF
    Posted July 25, 2012 at 10:29 pm | Permalink

    Why is there no understanding that supply side reforms to the labour market, taxation and education & training will make the difference?
    We need exports. We need real products and services. We need innovation.
    We don’t need more and more houses built in another frenzy of lending money to folk who can’t pay it back.
    We don’t need “demand” stimulated in the UK. We need supply stimulated.

  13. JimF
    Posted July 25, 2012 at 10:34 pm | Permalink

    Focussing on construction, as that’s where you seem to think the answer to our dreams lies, there are now so few development sites which are worthwhile pursuing in the South East. Add to that rapacious bank charges, and low prospect of capital returns, and there is no incentive to proceed.
    You are looking at the wrong target to increase growth. Focus on making things, selling services. Educate your workforce. Tax them less. Free up the regulations.

    • Simon
      Posted July 26, 2012 at 9:38 am | Permalink

      This is only a problem if the house building is led by the private sector.

      Public sector borrowing is now so cheap, that the government could borrow enough to build 10s of 1000s of houses for rent-to-buy, let them at below market rates, and still make money on the deal.

      Next April, there will be 650,000 people trying to move into smaller properties (that don’t exist), because the government is going to start docking their housing benefit £11/week for every extra bedroom they have.

      Aside from being social savagery, attacking the poorest people in society, while unlikely to earn the government even enough to pay for the administration of the policy (and the main reason I won’t be able to vote for Mr Redwood next election despite considering him an excellent MP), it would be a good excuse for the government itself to engage in some house building.

  14. norman
    Posted July 26, 2012 at 5:47 am | Permalink

    Too wet indeed.

    How to change course?

  15. IanH
    Posted July 26, 2012 at 6:48 am | Permalink

    The ONS should withdraw the construction sector measure, or at least use an averaged figure as they admit it is new(ish) and wrong.

  16. oldtimer
    Posted July 26, 2012 at 7:23 am | Permalink

    I see no prospect of a sustained recovery for the UK on present policies or with the present cadre of politicians who actually are in charge in the three main parliamentary parties – Conservative, LibDem and Labour. They all seem hopeless to me. The coalition has wasted three years pursuing more tax and spend policies – Miliband and Balls want even more of the same. Where are the men in grey suits when you need them? Where are the radical thinkers willing and able to deliver the supply side reforms the country needs?

  17. Acorn
    Posted July 26, 2012 at 8:45 am | Permalink

    All this spells “Stagflation” to me. So let’s think; errrrr, The currency took a dive a while back because nobody had a reason to buy it with their dollars; yen; yuan etc. The Pound Stirling is ultimately kept afloat by our ability to produce things that other people, with their currencies, want to buy.

    So that would likely cause some imported inflation. Inflation has been high for some while, well over Uncle Merv’s target. That would also imply that there was too much money chasing too few goods and services.

    Yes but no but … that implied there was no “output” gap in our production system that needed using up. Where has that gone then? Looks like some of that capacity was exported to foreign climes? Our Balance of Payments is still rubbish and getting worse according to:- http://www.ons.gov.uk/ons/dcp171778_269650.pdf .

    QE didn’t do it, in fact it appears not to have been a crisis that responded to “monetary” policy (BoE swap shop). That only bailed out the banks. It is going to have to be “fiscal” policy. The governments budget deficit is going to have to stay high, if not higher. How about taking VAT off petrol and diesel. A £10 billion tax cut. The same as a deficit increase. At this stage “fiscal stimulus” is the only growth promoting tool left in the box.

    • Jerry
      Posted July 26, 2012 at 7:56 pm | Permalink

      How about taking VAT off petrol and diesel

      The UK can’t do that, even if Osborne wished, well not completely to Zero percent. He could, of course, cut the other petroleum duties levied by the equivalent amount though to produce the same effect.

  18. Alan Wheatley
    Posted July 26, 2012 at 10:34 am | Permalink

    I do not think it should be taken as read that growth must be a good thing for every sector. That is, if you consider the big picture of National Strategy.

    For instance, it seems to me that construction can not grow indefinitely. We live on a fixed land mass and if we keep on constructing new things that is less and less space for construction-free areas, such as the countryside. Some construction will be replacement, but surely it is better to build things that will last rather than have to replace them: poor quality tower blocks are a case in point.

    Transport is another area where I think it would be wise not to view it as something that should always be growing. Do we really want to live in a society where more and more of us travel more and more?

    On the other hand, communications should be a growth area. In particular super-fast broadband has to all intents and purposes no adverse environmental impact yet brings vastly better services to the whole of the population. It is a big disappointment that this government is making such a poor job of rolling out the facility.

  19. Alan Wheatley
    Posted July 26, 2012 at 10:41 am | Permalink

    In the historic/classic car world where I operate companies are very busy. Or more particularly, as one of my trade customers put it, those companies that are making a decent product are busy.

  20. David Langley
    Posted July 26, 2012 at 12:30 pm | Permalink

    If the government gave cash to local government to build council houses, part owned whatever, surely this would give an immediate impetus to the building sector. What is the point of removing planning handcuffs if there is no way of taking advantage of that. The banks are useless unless you have assets, well the council has land assets so theres your security.

    • Jerry
      Posted July 26, 2012 at 8:15 pm | Permalink

      That would also have the added effect of cooling the over heated “Buy-to-let” market which by extension affect rents and the cost of housing benefit to the DWP. It won’t be so good for people who are dependant on such heat in the housing market/sector to fund their pension plans though!

  21. David Langley
    Posted July 26, 2012 at 12:33 pm | Permalink

    This government wants to stop wringing its hands and blaming everything and get stuck in to GB un LTD. Why do you think we want a green field party because the current lot are no hopers and wedded to failure or past failures. You need to start banking on Britain and not the EU.

  22. Christopher Ekstrom
    Posted July 26, 2012 at 1:05 pm | Permalink

    The government is the problem.

  23. RDM
    Posted July 26, 2012 at 1:41 pm | Permalink

    And time is running out!

    Look out, we’ll have a Lib/Lab pact next, resulting in more Europe?

    O, that was the plan all along!

  24. Eric Blackman
    Posted July 26, 2012 at 3:06 pm | Permalink

    The only political leader worth hearing is Nigel Farage. He sounds as if he means what he says unlike the rest who are frightened they might upset a voter with their remarks.
    If If the Tory party members and MP’s really believed in their country they would take the risk of joining UKIP now just as we young men dropped everything and volunteered for the forces because we perceived the country was in grave danger as it now is. We risked everything not just whether we had made a mistake and joined the wrong party. Tory MP’s contemplate losing their seats next time round. Join UKIP
    now and have a future. Don’t forget UKIP faught to keep the £££££ their logo.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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