U.K. dips its toes back into recessionary waters as U.S. stays dry—for now
The United Kingdom dipped into recessionary territory for the second time in less than four years, it was confirmed Wednesday, one of the more dramatic signs in recent months that predictions about austerity’s potential to heal the economy have been too optimistic. The recession water’s shallower this time—but still too cold for comfort.
It may come as a surprise to the long-term unemployed and underemployed—haven’t the last four years felt like one prolonged economic downturn?—but the technical definition of a recession is two consecutive quarters of shrinking GDP. And that hasn’t happened since 2009. Since then, the U.K. economy has managed to sputter and stumble and stagger to what was officially always considered an expansion. Until now.
U.K. GDP decreased 0.2 percent in the first quarter of 2012, the Office for National Statistics announced, blaming the fall on weak construction and production numbers. It was expected to grow by 0.1 percent. Since the economy shrank 0.3 percent in the fourth quarter of 2011, that means it’s time to party like it’s 2009.
In the spirit of British austerity, however, you might want to forgo fancy wines at any “Happy Recession” celebration. And if you plan to offer pasties, the meat- and veggie-filled pastry perfect for on-the-go dining in the London Tube, you still have time before you’ll have to pay a few more pence in taxes to help the government pay down its debt.
Austerity’s biggest proponent in the U.K. government is George Osborne, chancellor of the exchequer (that makes him the British Timothy Geithner—same job, very different views). And he’s not backing off the spending cuts championed by him, Prime Minister David Cameron and the government coalition made up of Conservatives and Liberal Democrats.
“It’s a very tough economic situation. It’s taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime,” he told the Daily Telegraph. “But over many years this country built up massive debts, which we are having to pay off. The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.”
Shadow Chancellor and MP Ed Balls, a member of the opposition Labour Party, said austerity measures have stood in the way of economic growth. He added that the U.K. should look to the U.S., which has fared better than the U.K. in recent years despite partisan gridlock and slow growth of its own.
“The Chancellor needs to explain why America, which has taken a much more balanced approach with a jobs plan to boost growth, has more than recovered all the output it lost in the global recession while our economy is shrinking again,” Balls said in a blog post.
Despite the continuing pains of the downturn, the U.S. has dodged a double-dip recession and the blast to confidence that would likely accompany it. America’s GDP hasn’t had a quarter of shrinking GDP since the 2009 recession ended, although figures have sometimes failed to meet growth expectations.
Some American lawmakers have embraced austerity in budget plans (see: Ryan, P. and Romney, M.). Unlike the U.K., however, the U.S. hasn’t managed to adopt a single unified policy that included full-throated austerity—or full-throated stimulus, for that matter.
The uproar over the so-called “Granny tax” in the U.K. parallels concerns American senior citizens have about “the end of Medicare as they know it.” And if Democrats in the U.S. try to blame across-the-pond woes on spending cuts there, Republican budget plans could lose some support.
Still, it’s impossible to determine whether too much austerity—or too little austerity—is to blame for the U.K.’s troubles. In other words, absent strong evidence that one approach or the other is working well elsewhere, the economy will continue its slog here without a strong, well-articulated strategy for combating it. But at least our slog is a few tenths of a percentage point better than the U.K’s.