Is recession looming?

[SalvorHardin]

Which was the point I was trying to make - the legacy COVID health-related 'activities' dropping out of the most recent GDP figures are clearly having a pronounced effect on the current 'recessionary' ONS figures, but there would be a valid view to be taken on that phenomenon that might suggest that if they *weren't* having such a pronounced effect, then that might show that we weren't spending enough on those COVID-related activities as we *should* have been doing...

There's a lot to be said for the 'we're in danger of talking ourselves into a recession' argument, and I think aspects such as this go some way to explain that, because we're currently in a comparative situation with regards to these types of GDP figures that are well outside what we might consider 'normal' in terms of injected influence* on previous comparative GDP figures...

The fall in GDP because of the big decline in COVID related expenditure is a great example of one of the many flaws in the method for calculating GDP. A big fall in COVID related spending is good for the economy because it reflects the vastly decreasing effect that COVID is having upon the economy. But that's not how the GDP statistics sees it.

All government expenditure counts towards GDP. So when it falls then GDP falls, whether or not that expenditure actually does something. So if state pays people to dig a series of holes and pays another group to follow behind them and fill in the holes as they are dug, then that increases GDP. It's even better for GDP if the government borrows a load of money because it can spend even more money employing hole diggers and hole fillers.

Lot of people are desperate for there to be a recession, so that they can use it to bash the government. I wouldn't be surprised if the recession is nothing like as bad as forecast, or even if there isn't one. A key factor is that there is a huge amount of pent up demand in the UK economy, thanks to the lockdowns, which is being released as the economy opens up. Lots of people (and businesses) have built up far more savings than they would have expected to have had because of the lockdown.

Also many people will cut their consumption of energy when they realise that they don't need to keep their central heating on in the entire house (or flat) for 24 hours a day at 25 centigrade. It might be a good idea to wear something thicker than a T-Shirt in the middle of winter.

Modern day economies are much more adaptable than they were in the 1970s, where a big rise in the oil price scuppered the western world. A key factor is that vastly less oil is required to produce a unit of output nowadays compared to the 1970s.

"The efficiency of oil use has improved, in other words oil intensity has declined, over the years and decades. In 1973, for example, when oil intensity was at its zenith, the world used a little less than one barrel of oil to produce $1,000 worth of GDP (2015 prices). By 2019 (the last data set before Covid) global oil intensity was 0.43 barrel per $1,000 of global GDP—a 56% decline. Oil has become a lot less important and humanity has become more efficient in making use of it."

https://www.energypolicy.columbia.edu/research/report/oil-intensity-curiously-steady-decline-oil-gdp

That said the doom and gloom that the media is pushing, combined with Keynes' "animal spirits" means that Britain could be talked into a recession because of a general lack of confidence. Then again, this has depressed the price, but not necessarily the value, of many potential investments

[scotview]

All government expenditure counts towards GDP. So when it falls then GDP falls, whether or not that expenditure actually does something. So if state pays people to dig a series of holes and pays another group to follow behind them and fill in the holes as they are dug, then that increases GDP.

Great post Salvor, thanks.

Aye, GDP, Gross Domestic Product.

Maybe its about time we had NDP, Net Domestic Product which included stuff like growing tatties, catching mackerel, manufacturing JCB's, domestic HC production and contributory things like that.

[pje16]

It might be a good idea to wear something thicker than a T-Shirt in the middle of winter.

Try a T-shirt under a jumper, layers of clothing keep you warmer than one thick garment

[servodude]

All government expenditure counts towards GDP. So when it falls then GDP falls, whether or not that expenditure actually does something. So if state pays people to dig a series of holes and pays another group to follow behind them and fill in the holes as they are dug, then that increases GDP.

Great post Salvor, thanks.

Aye, GDP, Gross Domestic Product.

Maybe its about time we had NDP, Net Domestic Product which included stuff like growing tatties, catching mackerel, manufacturing JCB's, domestic HC production and contributory things like that.

It's certainly a measure beset with misinterpretation and manipulation
Measure it three different ways then choose the ones you want!
- I blame the parents mysel'

But it is what it is and I doubt they'll find (and adopt) a more useful measure any time soon

[Nimrod103]

All government expenditure counts towards GDP. So when it falls then GDP falls, whether or not that expenditure actually does something. So if state pays people to dig a series of holes and pays another group to follow behind them and fill in the holes as they are dug, then that increases GDP.

Great post Salvor, thanks.

Aye, GDP, Gross Domestic Product.

Maybe its about time we had NDP, Net Domestic Product which included stuff like growing tatties, catching mackerel, manufacturing JCB's, domestic HC production and contributory things like that.

It's certainly a measure beset with misinterpretation and manipulation
Measure it three different ways then choose the ones you want!
- I blame the parents mysel'

But it is what it is and I doubt they'll find (and adopt) a more useful measure any time soon

The advantage of GDP is that it is such a big number, it incorporates all economic activity, and since the proportions of different types of activity should be pretty constant, it should be comparable from month to month, year to year. It’s not as if the country will take a whole month off, in order to shave each other. However, clearly recent figures have been affected by the unusual expenditures related to Covid and testing.
AIUI though, problems arise when comparing one country’s GDP with another, as there are small but significant differences in how the number is calculated.

[pje16]

The advantage of GDP is that it is such a big number

The problem with GDP is it is hard to get your head round a number that size
"In 2021, the gross domestic product of the United Kingdom amounted to approximately 2.2 trillion British pounds"
Source
https://www.statista.com/topics/3795/gdp-of-the-uk/?

Think about a billion pounds (not trillion)
If I owed you that and paid you back at the rate of a £1 per second
it would over 31 years to pay you back....

[servodude]

The advantage of GDP is that it is such a big number

The problem with GDP is it is hard to get your head round a number that size
"In 2021, the gross domestic product of the United Kingdom amounted to approximately 2.2 trillion British pounds"
Source
https://www.statista.com/topics/3795/gdp-of-the-uk/?

Think about a billion pounds (not trillion)
If I owed you that and paid you back at the rate of a £1 per second
it would over 31 years to pay you back....

Big numbers aren't so much a difficulty - given we expect this to grow by percentages we could use dB
...one really big disadvantage though is that it makes no consideration of time constants.

[stevensfo]

The advantage of GDP is that it is such a big number

The problem with GDP is it is hard to get your head round a number that size
"In 2021, the gross domestic product of the United Kingdom amounted to approximately 2.2 trillion British pounds"
Source
https://www.statista.com/topics/3795/gdp-of-the-uk/?

Think about a billion pounds (not trillion)
If I owed you that and paid you back at the rate of a £1 per second
it would over 31 years to pay you back....

This is just crying out for scientific verification. Volunteers? What about toilet breaks?

Failing that, brilliant material for a sketch.

Steve

[GoSeigen]

The advantage of GDP is that it is such a big number

The problem with GDP is it is hard to get your head round a number that size
"In 2021, the gross domestic product of the United Kingdom amounted to approximately 2.2 trillion British pounds"
Source
https://www.statista.com/topics/3795/gdp-of-the-uk/?

Think about a billion pounds (not trillion)
If I owed you that and paid you back at the rate of a £1 per second
it would over 31 years to pay you back....

It's really not that hard. The whole country earns GDP, not just one person.

If you borrowed not £1 billion but the entire £2.2. trillion, and everyone in the UK had to pay it back, they would have to pay about £3.60 per hour, which is not that far off what people earn. Funny that!

If you want small GDP numbers how about moving to a country with a small population, like Antigua or Bhutan?

GS

[SalvorHardin]

It's really not that hard. The whole country earns GDP, not just one person.


And thats just the stuff that's on the books. Theres a huge amount that goes on out with. Didn't they try to include prostitution in the GDP figs a few years ago?

Yes. Prostitution has been included in GDP since 2014. As has illegal drug dealing. So a major drugs bust could tip the UK into recession by withdrawing drugs from the market. Though I'd argue that because of the addictive nature of the product, the resulting increase in prices because of the reduction in supply should mostly offset the fall in GDP. There's a short video about this in the BBC article linked below:

"Britain's economy could be as much as £65bn bigger – almost 5% – when new GDP figures are published in September incorporating items such as prostitution and drug dealing under new statistical rules."

https://www.theguardian.com/business/2014/jun/10/accounting-drugs-prostitution-uk-economy-gdp-eu-rules

https://www.bbc.co.uk/news/av/45104007

The biggest thing that isn't included in the GDP figures is production within a household, activities for which no payment is made (what the economist Gary Becker called "Z-goods"). Most of this is DIY, child minding, cooking, teaching your children and grandchildren, gardening and repairing stuff. In short, doing tasks that you could pay someone else to do.

[stevensfo]

It's really not that hard. The whole country earns GDP, not just one person.


And thats just the stuff that's on the books. Theres a huge amount that goes on out with. Didn't they try to include prostitution in the GDP figs a few years ago?

Yes. Prostitution has been included in GDP since 2014. As has illegal drug dealing. So a major drugs bust could tip the UK into recession by withdrawing drugs from the market. Though I'd argue that because of the addictive nature of the product, the resulting increase in prices because of the reduction in supply should mostly offset the fall in GDP. There's a short video about this in the BBC article linked below:

"Britain's economy could be as much as £65bn bigger – almost 5% – when new GDP figures are published in September incorporating items such as prostitution and drug dealing under new statistical rules."

https://www.theguardian.com/business/2014/jun/10/accounting-drugs-prostitution-uk-economy-gdp-eu-rules

https://www.bbc.co.uk/news/av/45104007

The biggest thing that isn't included in the GDP figures is production within a household, activities for which no payment is made (what the economist Gary Becker called "Z-goods"). Most of this is DIY, child minding, cooking, teaching your children and grandchildren, gardening and repairing stuff. In short, doing tasks that you could pay someone else to do.

I do understand though I assume that this is very much tongue-in-cheek. Once you start down that rather grey area, you'll be there for ever.

Years ago, I seem to remember a couple of mothers charged with tax evasion for looking after each other's kids, free of charge. I do hope that they were cleared of all charges!!

My grandmother taught me to read before I went to school. She was never paid. But I did suffer for at least a year at school where they assumed that we had to start from scratch and I suffered a lot reading the f.....n cat on the mat when I was already into Enid Blyton! Can I sue someone?

I babysat my young sisters when I was a teenager. Should I have been paying N.I.?

Let's keep focused. Overpopulation, Climate change, Renewable energy and the NHS. Everything else is just tabloid cr*p.


Steve

[Bubblesofearth]

Re overpopulation. What do you propose? Sterilisation? Culling?

No need to do anything, nature is going to take care of the problem.

The rest of life on Earth will rejoice.

BoE

[ADrunkenMarcus]

I suspect a recession is inevitable. At least, I don't see where the growth will come from.

If we take someone earning £30,000 (more than the UK average wage) and the personal income tax allowance of £12,571, they have £17,429 of taxable income. Let's make it £17,500 to be simple.

Their income tax on that will be £3,500 (20 percent). (I'm ignoring NI, any pension contributions, etc.)

If we assume that their energy bills are those of a 'typical household', then in October 2021 the cap was £1,277. A recent BBC report contained a forecast that the cap would rise to £4,200 in January 2023.

That would represent an increase in expenditure of £2,923 on energy bills alone and is equivalent to raising the basic rate of income tax from 20 to over 36 percent.

I believe people are going to have to cut back very substantially on discretionary areas of spending, which will have consequences for growth.

And I shudder to think how people who already have no money for discretionary purchases are going to survive.

Best wishes


Mark.

[77ss]

.....
And I shudder to think how people who already have no money for discretionary purchases are going to survive.

.....

Mark.

Indeed.

I don't know what current figures are, but:

45% of households in the UK had a weekly income of below £600 (before tax) on average, in the 3 years to March 2021

(and 26% under £400).

https://www.ethnicity-facts-figures.ser ... ome/latest

We are not talking about small numbers of people here.

[BullDog]

I suspect a recession is inevitable. At least, I don't see where the growth will come from.

If we take someone earning £30,000 (more than the UK average wage) and the personal income tax allowance of £12,571, they have £17,429 of taxable income. Let's make it £17,500 to be simple.

Their income tax on that will be £3,500 (20 percent). (I'm ignoring NI, any pension contributions, etc.)

If we assume that their energy bills are those of a 'typical household', then in October 2021 the cap was £1,277. A recent BBC report contained a forecast that the cap would rise to £4,200 in January 2023.

That would represent an increase in expenditure of £2,923 on energy bills alone and is equivalent to raising the basic rate of income tax from 20 to over 36 percent.

I believe people are going to have to cut back very substantially on discretionary areas of spending, which will have consequences for growth.

And I shudder to think how people who already have no money for discretionary purchases are going to survive.

Best wishes


Mark.

Exactly. Adding the usurious levels of NICs now levied, it's difficult to understand how a deep and prolonged recession in the UK couldn't happen. It's going to be a very tough 2023, 2024 for consumer spending. I don't think the true scale of what's really happening has yet become fully apparent.

[richfool]

I suspect a recession is inevitable. At least, I don't see where the growth will come from.

If we take someone earning £30,000 (more than the UK average wage) and the personal income tax allowance of £12,571, they have £17,429 of taxable income. Let's make it £17,500 to be simple.

Their income tax on that will be £3,500 (20 percent). (I'm ignoring NI, any pension contributions, etc.)

If we assume that their energy bills are those of a 'typical household', then in October 2021 the cap was £1,277. A recent BBC report contained a forecast that the cap would rise to £4,200 in January 2023.

That would represent an increase in expenditure of £2,923 on energy bills alone and is equivalent to raising the basic rate of income tax from 20 to over 36 percent.

I believe people are going to have to cut back very substantially on discretionary areas of spending, which will have consequences for growth.

And I shudder to think how people who already have no money for discretionary purchases are going to survive.

Best wishes


Mark.

Exactly. Adding the usurious levels of NICs now levied, it's difficult to understand how a deep and prolonged recession in the UK couldn't happen. It's going to be a very tough 2023, 2024 for consumer spending. I don't think the true scale of what's really happening has yet become fully apparent.

Don't we just need an increase in renewable (and other) energy (supplies), to drive down energy prices and all will be hunky dory?

Surely it would be better to increase supplies of energy, rather than throw money at (subsidise) the poorer consumers.

[BullDog]

I suspect a recession is inevitable. At least, I don't see where the growth will come from.

If we take someone earning £30,000 (more than the UK average wage) and the personal income tax allowance of £12,571, they have £17,429 of taxable income. Let's make it £17,500 to be simple.

Their income tax on that will be £3,500 (20 percent). (I'm ignoring NI, any pension contributions, etc.)

If we assume that their energy bills are those of a 'typical household', then in October 2021 the cap was £1,277. A recent BBC report contained a forecast that the cap would rise to £4,200 in January 2023.

That would represent an increase in expenditure of £2,923 on energy bills alone and is equivalent to raising the basic rate of income tax from 20 to over 36 percent.

I believe people are going to have to cut back very substantially on discretionary areas of spending, which will have consequences for growth.

And I shudder to think how people who already have no money for discretionary purchases are going to survive.

Best wishes


Mark.

Exactly. Adding the usurious levels of NICs now levied, it's difficult to understand how a deep and prolonged recession in the UK couldn't happen. It's going to be a very tough 2023, 2024 for consumer spending. I don't think the true scale of what's really happening has yet become fully apparent.

Don't we just need an increase in renewable (and other) energy (supplies), to drive down energy prices and all will be hunky dory?

Surely it would be better to increase supplies of energy, rather than throw money at (subsidise) the poorer consumers.

Without a doubt you're largely correct. Problem being that for the last 40 years or so the UK has not had anything like a coherent policy on energy security/robustness and self sufficiency. We're regrettably all going to pay the price for that.

[GoSeigen]

Without a doubt you're largely correct. Problem being that for the last 40 years or so the UK has not had anything like a coherent policy on energy security/robustness and self sufficiency. We're regrettably all going to pay the price for that.

I think it's more because we've had 12 years of economically clueless government by a party distracted with worthless adventures like so-called austerity, three leadership campaigns, five elections and referendums including the Brexit referendum, Brexit negotiations, blue-rinse COVID lockdowns and now post-Brexit mayhem -- along with cheering on the self-obsessed and protectionist agenda of their transatlantic dumb buddy.

Remember "strong and stable"? Would be funny if only fate had a sense of irony....


GS

[BullDog]

Without a doubt you're largely correct. Problem being that for the last 40 years or so the UK has not had anything like a coherent policy on energy security/robustness and self sufficiency. We're regrettably all going to pay the price for that.

I think it's more because we've had 12 years of economically clueless government by a party distracted with worthless adventures like so-called austerity, three leadership campaigns, five elections and referendums including the Brexit referendum, Brexit negotiations, blue-rinse COVID lockdowns and now post-Brexit mayhem -- along with cheering on the self-obsessed and protectionist agenda of their transatlantic dumb buddy.

Remember "strong and stable"? Would be funny if only fate had a sense of irony....


GS

That's all very true but the lack of any half serious national energy security policy predates the mess you describe. Myself, I would say it all started to go wrong when Mrs Thatcher cancelled the UK's civil nuclear energy programme. Only Sizewell B was completed. Big long term strategic error. I recall the reaction at the the time from the French was "the ros bifs might have all the oil and gas, but it's France that has all the ideas". I am not saying it's all milk and honey over there, far from it. But that's when I believe the gross mismanagement of UK energy policy really started. It's taken us decades to be where we are today. In a mess largely of our own making.

[scotview]

But that's when I believe the gross mismanagement of UK energy policy really started. It's taken us decades to be where we are today. In a mess largely of our own making.

We are where we are. The thing now is to find a way out of this. What do you think it will take and for how many years.

To me .GOV seem to be in total denial. I personally think this is a very serious situation that isn't getting the urgent attention it deserves, winter is near.