How spending cuts delivered the double dip
Today’s updated construction figures for the first quarter of 2012 from the Office for National Statistics are disappointing.
Despite the claims of many City analysts that last month’s estimates of 3 per cent fall would be revised up, they’ve actually been revised down by the ONS today. The ONS now thinks the sector shrank by 4.8 per cent over the three months.
And if you dig into the entrails of the ONS release there’s an interesting public/private divergence going on (click to see full table):
New public housing construction over the three months is down 10.9 per cent, driven by deep cuts to councils’ house building grants from central government. Private housing construction, however, was actually up 1.3 per cent.
Infrastructure construction is down a whopping 15.9 per cent. Now, the ONS doesn’t split this into public and private, but the majority of big projects are commissioned by government, so that reflects state spending cuts too.
This chart illustrates the divergence:
Private sector construction is clearly pretty weak by historic standards. But public sector construction is weaker still.
Construction was what dragged GDP into negative territory in the first quarter. If you strip out the sector – which makes up around 8 per cent of output – the economy would have been flat since the ONS estimates that the massive services sector grew by 0.1 per cent over the three months (see page 7 of the ONS first estimate of GDP). And, of course, the fall in GDP in Q1 was what delivered the technical recession and the double dip.
This raises the possibility that, if the Government had cut less on infrastructure and public housing, other things being equal, construction would not have fallen by the same degree*, GDP growth in the first quarter would have been 0, and Britain would not now be in a double dip recession.
* Using the above table I calculate that if new public housing, infrastructure and public new work had remained flat over the three months construction output would have been £26,454m, rather than £25,622m. This would imply a 1.7% fall, rather than a 4.8% drop. A 4.8% drop knocked 0.2% off total GDP, according to the ONS. So a 1.7% drop would have knocked off a percentage of GDP statistically insignificant from zero.Tagged in: construction, councils, double dip, housing, spending
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