Uk Economy Contracted 2.4% In First Quarter

[FreeTrader]

Well spotted FT. It would be interesting to see an accurate one with revisions, I suppose the ONS would have one?

One on this page.

[Sceptical]

Soo the fall at the current pace is a 10% contraction annualized(depression level). QE is another 10% of the economy basically. So we'd be looking at an epic 20% fall without the QE.

Hasn't most of the printed money just ended up sat in the banks to shore up their capital - it's not in free circulation, so not sure you can make this jump/

My personal plan all along I have been advocating was QE on the scale of £350-£400 billion a year, all funding fiscal deficits. That would put us into positive growth territory.

Are you serious?

Growth maybe, but utterly bankrupt definately, with interest repayments eating up all our 'wealth'. Alternatively, if we just keep printing to pay the interest, a devalued currency leading to higher costs of our imports (i.e. everything).

Either way, lower standard of living. There's no way to escape it - time to repay.

[Sceptical]

Why do you think £ is not collapsing on this news?

I've been thinking about this a lot, especially given the QE extravaganza,

Only theory I have come accross which makes much sense is that GBP are required to buy FSTE listed shares - including those of the large, non UK companies which are listed there.

So, as 'investors' look to 'seize the buying opportunity of a lifetime' / 'follow the herd and plough in so as not to miss the party', they have to buy GBP, which props up the x-rate. I read somewhere that the Chinese gov't had GBP 12bn ready to make a move on Rio Tinto a while back...

So, the logical conclusion is that UK government can print money and give it to its citizens to buy foreign goods with no repercussions, which is nice.

Unless companies move off the FTSE, to say, Dubai...

[Sceptical]

The FTSE does not seem to mind much though...

FTSE hasn't got much to do with the UK economy, since a lot of the companies are not UK companies, or have the vast majority of their operations in foreign climes...

[BubbleBlower]

Interesting estimate, but I don't follow some of your assumptions.

I was thinking about that too. Very rough estimate is the UK annual gdp is £1.6 trillion. So quarterly is £400 billion.

The increase in the deficit is probably £160 billion and QE at £150 billion. Aka £40 billion per quarter.

Does it really make sense to talk about these things quarterly? There is no restriction on them printing more money before the year is out. Also the deficit is rising quickly so trying to convert it to quarterly figures for comparison is a little dubious.

Soo the fall at the current pace is a 10% contraction annualized(depression level). QE is another 10% of the economy basically. So we'd be looking at an epic 20% fall without the QE.

Not sure that I follow this - if we assume a yearly hit of 10% to the GDP then we get £160M. You seem to be inferring that every pound of the QE has had a 1:1 effect on the GDP. As someone mentioned earlier most of this money is locked up in banks underpinning their capital ratios. But if they start to release their grip on the cash and it actually makes it into the wider economy then the velocity of money would mean each pound of QE would create several pounds of output in the economy.

So all in all I'm not sure that you can just compare these two things additively and jump to the conclusion of a 20% fall being masked by the measures.

[spivT]

just wait until the next 2 quarter's figures come through.

those figures will be better surely, wasn't it reported that april and may saw growth.

[Deckard]

I've been thinking about this a lot, especially given the QE extravaganza,

Only theory I have come accross which makes much sense is that GBP are required to buy FSTE listed shares - including those of the large, non UK companies which are listed there.

So, as 'investors' look to 'seize the buying opportunity of a lifetime' / 'follow the herd and plough in so as not to miss the party', they have to buy GBP, which props up the x-rate. I read somewhere that the Chinese gov't had GBP 12bn ready to make a move on Rio Tinto a while back...

So, the logical conclusion is that UK government can print money and give it to its citizens to buy foreign goods with no repercussions, which is nice.

Unless companies move off the FTSE, to say, Dubai...

Everyone is doing QE: the FED, the BOJ, and now the ECB, by lending Euro 442 billion to European banks for a year at 1pct, so they can buy government bonds.

Also, as I said in my post above, UK Q1 GDP decline is in line with both Eurozone and EU.

£ was oversold in a panic towards the end of last year, and we are now witnessing a correction - from this perspective today's GDP figures are a non event.

[Normal]

That BBC graphic is wrong.

They're just punching in the latest quarterly number and not including the revisions. For example Q4 08 is now -1.8% and Q3 08 is -0.7%.

Email them. They tend to be pretty good about correcting stuff these days. At least online stuff...

[drrayjo]

Email them. They tend to be pretty good about correcting stuff these days. At least online stuff...

What it should look like;

[pete.hpc]

In the light of the annual GDP revision I've updated the graphic that shows the slight miss the BoE made with its growth predictions in the May 08 Inflation Report.

These are the people who are expanding the monetary base by a factor of 7 and are confident they know what they're doing.

Holy Cow that is a scary graph

Also, is it just me? or;

IS THERE A MASSIVE BULL-SHAPED HOLE IN THIS THREAD?

[Jim B.]

Rather amusing that no bulls have yet had the courage to post on here. This is far more significant that the Nationwide figures.

[three pint princess]

That BBC graphic is wrong.

They're just punching in the latest quarterly number and not including the revisions. For example Q4 08 is now -1.8% and Q3 08 is -0.7%.

That BBC graphic is wrong.

They're just punching in the latest quarterly number and not including the revisions. For example Q4 08 is now -1.8% and Q3 08 is -0.7%.

Well spotted.

Maybe they forgot to update.

http://news.bbc.co.uk/1/hi/business/7789844.stm

They could just be randomly assigning numbers from central HQ.

Edited June 30, 2009 by Tom Peters

[lowrentyieldmakessense(honest!)]

Rather amusing that no bulls have yet had the courage to post on here. This is far more significant that the Nationwide figures.

as we have an economy built on debt, consumption and housing

GDP lags house prices

Employment lags house prices

not that i am bullish on uk house prices

[bobthe~]

Q1's drop was not much less than the whole recession of the 90s.

[Number79]

who didn't know that the government were lying and that we were already in recession b efore it was admited?

the only thing that amazes me is that none of the media have used the figures as proof that the government were lying rather than acting shocked.

[grumpy-old-man-returns]

Q1's drop was not much less than the whole recession of the 90s.

when is it going to dawn on people that this is a depression.

edited - this is starting to annoy me now, because people on here (even with all this knowledge) are in denial.

Edited June 30, 2009 by grumpy-old-man-returns

[Rinoa]

Rather amusing that no bulls have yet had the courage to post on here. This is far more significant that the Nationwide figures.

We've left you to do your doom mongering in peace.

That's where the bear's have the necessary expertise, we wouldn't wish to intrude.

But as you asked us to join in here's a question for you.

If this is the greatest contraction since 1958, but prices are £6k up from the trough in February, what will happen to prices when we come out of recession?

Edited June 30, 2009 by Rinoa

[punter]

In the light of the annual GDP revision I've updated the graphic that shows the slight miss the BoE made with its growth predictions in the May 08 Inflation Report.

These are the people who are expanding the monetary base by a factor of 7 and are confident they know what they're doing.

I love this graph freetrader, well it goes to show that they dont know WTF they're doing. central bankers have no special qualifications or insight to make forecasts and predictions, they shouldnt be in the business of doing it, you see what happens and you record the data and make spending plans based on that. these predictions whether on GDP or borrowing have bankrupted us.

The Treasury and the BOE needs a good clean out of all these idiotic, treacherous pr*cks

these people also make incorrect decisions on interest rates and have been doing for years but they're treated as wise economic sages. they're totally discredited.

Edited June 30, 2009 by punter

[bobthe~]

I love this graph freetrader, well it goes to show that they dont know WTF they're doing. central bankers have no special qualifications or insight to make forecasts and predictions, they shouldnt be in the business of doing it, you see what happens and you record the data and make spending plans based on that. these predictions whether on GDP or borrowing have bankrupted us.

The Treasury and the BOE needs a good clean out of all these idiotic, treacherous pr*cks

They will never "predict" a recession because then they will be accused of "talking down the economy".

Honesty is a treasonable offence in govt.

FreeTrader, that graph has to be one of the funniest things in the world of economics. Although it is not up against much stiff competition.

[punter]

We've left you to do your doom mongering in peace.

That's where the bear's have the necessary expertise, we wouldn't wish to intrude.

But as you asked us to join in here's a question for you.

If this is the greatest contraction since 1958, but prices are £6k up from the trough in February, what will happen to prices when we come out of recession?

again, you're making assumptions. we could be in recession for a decade. when we're out of recession it will be after two or three quarters of recorded actual growth (not predicated or imagined) so lets wait for that to happen before you get too excited and that won't be for a number of years and after the government changes.

[interestrateripoff]

when is it going to dawn on people that this is a depression.

edited - this is starting to annoy me now, because people on here (even with all this knowledge) are in denial.

That's because you fail to grasp debt is wealth.

Once you accept this fact you will see that your prediction of depression is totally wrong. Currently this formula has had a minor hiccup but our dear leader is prepared to spend like no other PM in history and take the debt levels of this nation to record highs to bring growth back.

No other leader is committed to this policy because they do not understand the fundamentals of this new economic paradigm.

Educate yourself before you are left with egg on your face.

[interestrateripoff]

If this is the greatest contraction since 1958, but prices are £6k up from the trough in February, what will happen to prices when we come out of recession?

Great back on course for the £1.38bn family home then?

[bobthe~]

We've left you to do your doom mongering in peace.

That's where the bear's have the necessary expertise, we wouldn't wish to intrude.

But as you asked us to join in here's a question for you.

If this is the greatest contraction since 1958, but prices are £6k up from the trough in February, what will happen to prices when we come out of recession?

Well the simple answer is that these are Q1 figures, of which February is a part, and I also think the stage is being set for a triumphal set of Q2 figures showing the "worst is over". then it is back to where we were in Q1 for at least the rest of the year.

Just my view, obviously.

[indirectapproach]

"The FTSE does not seem to mind much though..."

This may be because FTSE follows New York slavishly.

So US consumer confidence numbers have far more impact on where FTSE goes than UK GDP numbers.

This might explain todays chart.

Unattractive, unfair, ugly, unreal perhaps but maybe that's the way it is and has been for a very long time.

[indirectapproach]

"what will happen to prices when we come out of recession?"

Oh that's just too easy.

If the complex system that is the housing market repeats, which history and apparently the algebra suggests it will, there will be a long flat period of stable, low prices, followed by small increases, which will gather momentum, lead on to large increases and another boom followed by another bust.

If there has been a paradigm shift it is likely to be on the South side because 2.4% in one quarter is very South.

On the basis everything is possible, maybe there will be a paradigm shift North.

But everything is not possible.

You cannot have a shave if you do not have a razor.

So, the pattern of previous crashes will repeat and if it doesn't prices will decline by more than previously and housing will be even more undervalued as we come out of recession than it has been before.

This is called "undershoot".