THE UK capitalist economy slumped in the fourth quarter of 2010, contracting by 0.5 per cent, instead of the meagre 0.5 per cent growth that was expected.
‘Weakness’ in the construction and services sectors were blamed. Activity in the construction sector contracted by 3.3 per cent. Services, Britain’s biggest sector, saw a 0.5 per cent contraction.
Output in the production industries, which includes manufacturing, increased by 0.9 per cent, the ONS said.
The housing market remains weak and unemployment is growing, but inflation is roaring away with record rises in food, petrol, clothing, gas and electricity costs taking place and expected to continue.
The Chancellor of the Exchequer, George Osborne, commented yesterday ‘These are obviously disappointing numbers, but the ONS has made it very clear that the fall in GDP was driven by the terrible weather in December.’
He added: ‘We have had the coldest weather since records began in 1910, and this has clearly had a much bigger impact on the economy than anyone expected.’
2010 was also the hottest year since records began, so Osborne’s point of argument is very slight indeed.
In fact, the capitalist economy expanded by 1.2 per cent in the second quarter, and by 0.7 per cent in the third, so the trend is consistently downwards, regardless of the temperature throughout the year.
A deepening slump in output is ahead as the VAT rise to 20 per cent takes effect, as well as the record price rises, and the fact that up to 200,000 public sector workers will lose their jobs this year, slashing the purchasing power of millions of families.
The British capitalist economy is heading for a catastrophe. This will see the Bank of England’s Monetary Policy Committee split into two warring groups, one arguing for printing lots more money and the other demanding a major increase in bank rates to quell the inflationary fires, plunging the housing market into a desperate crisis, and also putting hundreds of thousands more workers out of their jobs.
The pound last week hit a two-month high on fears of rising inflation. It fell 1.3 per cent to $1.5785 against the dollar yesterday. Sterling also lost one per cent against the euro to £0.8610. Yields on two-year gilts, which are among the most sensitive to interest rate moves, were down 13 basis points to 1.18 per cent. Yields on 10-year gilts were down 10 basis points at 3.58 per cent.
The government, meanwhile, stated that there was no question of it reversing its savage cuts policy.
The data came a day after the demoralised outgoing Director General of the CBI employers’ body lambasted the government for having no clear policies on growth and no vision of how the economy will develop.
Sir Richard Lambert noted that the government had ‘taken a series of policy initiatives for political reasons, apparently careless of the damage that they might do to business and to job creation.’
Alongside the slump, there is now the prospect that billions more notes will be printed. The stench of ‘Stagflation’ is in the air.
Meanwhile, the International Monetary Fund (IMF) was issuing its own warnings.
The Washington-based institution stated: ‘More than two years after the onset of the financial crisis, global financial stability is still not assured. It is still at risk.’
It added on the risks from the financial and debt crises in eurozone countries such as Greece and Ireland warning of a new banking crisis stating ‘Markets remain skittish about potential losses in the region’s banks and have not been assuaged by stress tests conducted to date.’
The only way out of the capitalist crisis is through socialist revolutions in the UK and the other major capitalist states, to put an end to the capitalist system and to bring in socialism.