UK economic growth for the last quarter of 2011 has been revised downwards to a 0.3% contraction, another body blow to those who had been predicting revival.
There was also a revision downwards of the GDP figure for the three months from April to June 2011. This was revised from no change to a 0.1% contraction, meaning that the economy has been alternating between a miniscule growth and then contraction in successive quarters since the middle of 2010.
Bank of England governor Sir Mervyn King in his evidence to the House of Lords Economics Committee has predicted that the economy will continue to zig-zag between growth and contraction this year, as part of a downward spiral movement.
After the release of the new revision the pound fell to a two-week low against the US dollar of $1.5904.
The ONS has also said that real household disposable income had fallen by 1.2% in 2011, the biggest decline since 1977.
It added that retail sales volume fell by 0.8% in February compared with the previous month.
The decline was bigger than expected, while January’s ‘unexpectedly strong growth’ in sales volumes of 0.9% was revised down to 0.3% by the ONS.
In his statement on Tuesday to the House of Lords, the Governor of the Bank of England, Mervyn King, said that he was so unsure about the economic situation that he did not know whether the Bank would need to launch a fresh round of quantitative easing or not.
For good measure he predicted that the celebrations for the Queen’s diamond jubilee could throw the British economy into a deeper reverse.
King said it was ‘quite possible’ UK output would shrink over the next three months.
He also indicated that the banks would continue to refuse to lend, saying: ‘Even though funding costs have come down in the first couple of months of this year, they’re still higher than they were a couple of months ago because of what’s going on in the euro area.’
Pressed on whether the economy would recover to pre-crisis levels of growth, the governor, indecisive to the end, said: ‘I would like to think that we can go back to the sort of economic growth rates we saw in the past. Those people who are struggling on low incomes would feel it rather a policy of despair to say that we can’t achieve growth.
‘I see no economic reason why we cannot, in the long run, go back to the sort of growth rates we had before. Once we come through this crisis we will be able to get back to that sort of period again, but it will take some time.’
The most that this head banker would say was that he did not know when the financial crisis would end, but that one day we would all wake up to find that it had gone away.
While King was peddling day dreams, the EU was in a state of alarm.
This was after European leaders were urged by Angel Gurria, the head of the OECD economic organisation, that they must erect ‘the mother of all firewalls’ to protect the eurozone melting away from the flames of financial contagion.
Finance ministers were urged to come up with a plan to boost the capacity of the eurozone’s bailout funds that will be sufficiently large to impress investors.
‘When dealing with markets, you must overshoot expectations. . . The mother of all firewalls should be in place, strong enough, broad enough, deep enough, tall enough, just big.’
Gurria is suggesting that the mother of all firewalls would amount to several trillion euros.
However there is no such firewall available capable of satisfying the hedge funds of the world.
Capitalism’s crisis is set to deepen. The only solution is to give it a decent burial on a world scale through the victory of the world socialist revolution.
