This is yet another grim warning that our economy is heading for a fall/ All this false optimism which acts as a drug to keep the proletariat quiet iks rubbish. As another Sunday Telegraph Bisiness journalist, Mark Kleinman, mentions:----
“Spotters of economic green shoots need lessons in botany
The sharper-than-expected fall in UK economic output announced on Friday shocked those followers of the dismal science who had been expecting a gentler contraction. Once again, observers of green shoots are being ushered back to their greenhouses for botany courses for beginners.”
Liam Halligan drags us back from the froth and personalities of politics and returns us to the daily destruction of our country by a discredited government that has outstayed its welcome. The fact that it will not go now will make its eventual defeat all the more crushing.
Christina
SUNDAY TELEGRAPH 26.7.09
Huge gilts row barely registers as the UK sleepwalks into stagnation
The political classes obsess over the Norwich North by-election and Labour's slow-motion hara-kiri under Gordon Brown. But the news that really matters – the economic news – keeps flowing thick and fast. And it's far from reassuring.
By Liam Halligan
UK output shrank 0.8pc between April and June – far worse than the average 0.3pc slump predicted by City economists. All parts of the economy – apart from the public sector – are now in recession.
This was the fifth successive quarter of GDP contraction, with output down 5.6pc since the spring of 2008 – more than double the depth of the early 1990s recession and the steepest peace-time fall since the early 1930s.
Serious financial obstacles prevent a return to sustainable growth. With the global economy still on the skids, demand in key overseas markets remains muted.
Far more significantly, though, UK banks continue to hold the rest of the country to ransom, refusing to extend credit on reasonable terms, despite replenishing their balance sheets off the back of taxpayer largesse.
Regular readers will know what's coming next. But repetition doesn't make a fundamental truth untrue. The UK's inter-bank market remains gridlocked largely because banks are still unwilling to lend to each other. That gums up the wheels of finance, starving credit-worthy firms and households of the cash they desperately need.
This inter-bank torpor stems from fear of counter-party risk, because our banks continue to sit on billions of pounds of toxic liabilities which they still refuse to reveal.
A wiser government, a braver government, would have forced the banks to "fess-up" these losses before splashing the bail-out cash, so purging the system and allowing a genuinely restructured banking sector to dust itself down and start again. It's called "creative destruction". It's not pretty, but it's the only thing that works.
These GDP numbers expose the City's talk of "green shoots" as nonsense. A full recovery won't happen while the UK remains burdened by our newly created Japanese-style "zombie banks".
This is the heart of the problem – yet the politicians don't want to know. The banks are ticking over on a diet of government cash while charging usurious rates on extremely limited lending books. The UK, meanwhile, sleepwalks towards a lost decade.
As the economy stagnates, unemployment rises and the national accounts bleed ever more red ink – as revenues collapse and government spending goes up. New figures show that in June, tax receipts were 8.2pc lower than the same month the year before, while social security benefits were 9.7pc higher.
In any downturn, the public finances suffer, as tax and spending pull in opposite directions. But the bank rescue packages and the depth of the current recession are tearing the UK's national accounts apart.
In his 2008 budget, Alistair Darling said he'd borrow £70bn during 2009/10 and 2010/11. In this year's budget, the Chancellor admitted no less than £348bn of extra debt would be racked up during that period – an astonishing five-fold increase on his forecast of 12 months before.
But even that jaw-dropping increase was an underestimate – because Darling's borrowing predictions are based on the UK economy shrinking only 3.5pc this year, then returning to growth of 1.25pc in 2010 and 3.5pc in 2011.
When these projections were published three months ago, this column dubbed them "ridiculous". Given how growth has fared since, they now look even worse. So the UK will borrow even more this year than the £175bn announced at the last budget. No wonder the gilts market is so spooked.
While admitting fiscal consolidation is needed "at some point", politicians from all main parties drone on that the UK's national debt, while sharply up, is "only" around 56pc of GDP. "It's much higher in the US, Italy and Greece," they say.
Fetch my revolver. Do these people not understand that insolvency relates not to the stock of debt, but to cash flow? And as spending rises and tax receipts fall, cash flow is the issue upon which the gilts market is now very firmly focused.
The UK is issuing more debt as a share of GDP than any major economy. We're borrowing twice as much in 2009 as France and Germany. In recent months, banana-republic style, the Bank of England itself has bought around half of all gilts issued.
Then on Thursday, following the biggest auction of index-linked sovereign debt in UK history, a massive dispute broke out, with investors publicly accusing the authorities of bad faith after the Bank hinted, just 20 minutes after the sale had closed, that it may soon stop buying gilts.
Such a row is almost unprecedented. It is of huge and pressing importance to this country's future status as a viable going concern. Yet it barely registered on the media's radar, receiving a mere fraction of the column inches devoted to the soap opera of Norwich North.
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