Monday, 12 July 2010 08:42

BoomBustBlog Contrarian Global Macro Analysis: The Overt Optimism in UK Financial Predictions Comes Back to Bite Them, Just As We Forecasted

From Reuters, by way of CNBC:UK Economic Slump Deeper than Thought

Britain's record recession was just as deep as we conservatively estimated it using realistic metrics even deeper than previously thought, and the economy could still have contracted in the first quarter of this year were it not for hefty government spending, official data showed on Monday.

The Office for National Statistics left its earlier estimate of first-quarter growth unrevised at 0.3 percent, giving an unchanged annual decline of 0.2 percent.

Britain faces mixed prospects for the second quarter, after data released at the same time showed that services output contracted 0.3 percent in April, the biggest fall since January.

During the first quarter, the biggest rise in government spending since the fourth quarter 2008 added 0.4 percent to GDP growth, alongside a 0.9 percent contribution from gross capital formation, which helped offset a drag of 0.9 percent from net trade. Imports rose and exports fell in roughly equal measure.

The figures suggest a major rebound in British exports will be needed to maintain growth when planned government spending cuts take effect from later this year.


As part of a major annual revision of previous quarters' GDP data, the ONS said that Britain's economy contracted by 6.4 percent between the second quarter of 2008 and the third quarter of 2009, more than the 6.2 percent previously estimated.

The ONS said that was because growth at the start of 2008 had been weaker than first thought, magnifying the size of the subsequent decline.

The resulting fall was the biggest since quarterly records began in 1955 and wiped a total 22 billion pounds off the economy -- 2 billion pounds more than previously thought.

The ONS also released first-quarter current account data, which showed that Britain's deficit with the rest of the world widened to 9.628 billion pounds in the last three months of 2009, more than twice as much as expected and compared with a surplus of 521 million pounds in the fourth quarter of 2009.

In other portions of the news...

  • Bank of England keeps rates steady
  • ... kept its main interest rate at a record-low 0.5 ... to the risk of a slowdown in Britain's economic recovery ... 0.5 percent since the depths of the recession in March ...
  • Thursday, 8 Jul 2010 03:02am EDT
  • UPDATE 4-Marks & Spencer sales rise at slower pace
  • ... Britain's retailers are concerned that higher taxes, including ... cuts aimed at slashing record government borrowing ... British economy to lurch back into recession. ...
  • Wednesday, 7 Jul 2010 12:43am EDT

Of course, subscribers of the blog were prepared for this since the first quarter as we conservatively warned that the UK was 1) being overly optimistic in its revenue projections 2) being unrealistic in the interpretation of the effect spending cuts would have on the economy (recession bound?) and 3) being unrealistic in its ability to actually effect said spending cuts. The IMF and the EU also chimed in with this unrealistic optimism. Below are the first three pages of our subscription-only analysis of the UK's public finances... File Icon UK Public Finances March 2010 (click here to subscribe):

Those who are interested in our opinion research regarding the rest of the Pan-European Sovereign Debt Crisis should click here for an all you can eat Macro-fest!

Last modified on Monday, 12 July 2010 08:58

1 comment

  • Comment Link Maria dos Santos Monday, 12 July 2010 08:56 posted by Maria dos Santos

    Mr Waylat at MarketOraclce is way more optimistic about the UK,I some how or other seem to lean toward your analysis Reggie.

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