Falling household spending is dragging the economy down, says TUC



Rob Johnston,
Midlands TUC Regional Secretary

Household spending has now been falling for 12 months and is a key drag on the UK's economic growth, the TUC says ahead of the first estimate of GDP growth in the third quarter of 2011 due to be published later today (Tuesday). Consumption in the second quarter of 2011 fell by -0.8 percentage points; the sharpest fall since early 2009, when the country was still in recession.
With wages rising at less than half the rate of inflation, public sector workers facing a pay freeze, and tax credit cuts, benefit reductions and increased VAT further reducing family incomes, the TUC expects household spending to be an even bigger drag on growth in the months to come.
Government expenditure (which made a contribution to growth of 0.26 percentage) and investment (which contributed 0.24 percentage points) just about kept the economy afloat in the last quarter, says the TUC.
Government spending was particularly crucial - showing its strongest growth since the end of 2008. But with the government's austerity measures now starting to bite, expenditure is now likely to fall and further depress output, says the TUC.
With consumer and business surveys showing confidence still falling, and the effects of the Eurozone crisis yet to fully show up in official data, there are fears that the UK's economic woes are getting worse rather than better, says the TUC.
With the 'so-called' economic recovery on course to be the slowest for nearly a century, the TUC is calling on the government heed the growing economic warning signs, reconsider its austerity programme, and create a new plan for growth that prioritises jobs and decent wages.
Midlands TUC Regional Secretary Rob Johnston said: "We all hope that tomorrow's GDP figures bring good news. But with consumer spending plummeting, cuts now starting to bite and exports increasingly weakened by the global economic situation, it's hard to see how the UK's economy can return to full health in the near future.
"Ministers need to take action to ease the cost of living squeeze as you can't build a sustainable economic recovery while people are getting poorer.
"The government must recognise the scale of our economic quagmire, review its austerity programme and introduce immediate measures to stimulate growth."

GDP figures show double-dip recession is now a real danger, says Midlands TUC

Rob Johnston, Midlands TUC Regional Secretary

Responding to the final revision of GDP growth figures for the second quarter of 2011, published today (Wednesday) by the Office for National Statistics, Midlands TUC Regional Secretary Rob Johnston said:
“The economic news just keeps on getting worse. Today’s revision of the GDP growth figures show the economy is doing even more badly than expected. There is now a real danger of the UK going back into recession, and the best that current policies can deliver will be years of stagnation.
“The Midlands economy was the hardest hit region during the initial downturn and now we stand on the precipice of another recession.”
“As the manufacturing centre of the country, the Midlands really should be the engine for growth. We all know that we need to boost exports and manufacturing yet the Government’s policies are undermining confidence, investment and growth.”
“Manufacturers across the Midlands are crying out for the Government to get active rather than pontificate from the sidelines. The window of opportunity to avoid another recession in the Midlands is closing fast.”
“We need action to kick start the economy, rather than speeches telling us to look on the bright side. The fall in household spending is almost as steep as at the height of the crash as wages are squeezed, prices rise and families cut back.
“Of course people should be sensible about paying back unsustainable debt, but the truth is that the government is relying on people borrowing more as OBR forecasts reveal. George Osborne must be hoping that people ignore the Prime Minister’s advice to pay back their credit cards today.”

No sign of growth strategy or help on living standards squeeze from Chancellor

Brendan Barber

Commenting on the Chancellor's speech to the Conservative Party conference today (Monday), TUC General Secretary Brendan Barber said: "Millions of people are looking for a strategy to get our economy growing again and respite from the huge squeeze on living standards that this government has worsened with deep spending cuts. They will be sorely disappointed by the Chancellor's speech today.
"At a time when the UK economy is stagnating, all we heard were cheap lines for right-wing activists, a re-hash of old policy announcements and help for bad bosses to mistreat and sack staff on the cheap. The Chancellor is not listening to the growing calls for a plan B - and we are all playing the price."

Pathetically small bankers’ levy barely covers their corporation tax cut, says TUC

Commenting on plans announced today (Tuesday) by the Chancellor to increase the bankers’ levy to £2.5 billion this year, Midlands TUC Regional Secretary Cheryl Pidgeon said: “This levy is pathetically small compared to the amount UK taxpayers are owed for the financial crash and barely covers the cost of the corporation tax cut the Chancellor is giving the banks.
“Begging bankers to shell out small change from their bonus pool falls well short of the action needed to reform our finance sector so that it can start to serve the wider economy again, rather than the other way round.
“Rather than set alarm bells ringing in the City, this levy will be met with the sound of clinking champagne glasses.”

Government urgently needs a plan B, warns TUC

Brendan Barber,
TUC General Secretary

Commenting today (Wednesday) on the recent economic data on inflation, unemployment and growth, along with the speech by the Governor of the Bank of England last night, TUC General Secretary Brendan Barber said: “Yesterday’s dismal growth figures and the Governor’s revelation that ordinary people are paying a heavy price for the government’s economic policies, on top of huge cuts in vital services, make a plan B even more necessary.
“In his budget the Chancellor must change course.
“Above all the government needs a growth strategy that can get people back to work and the tax receipts flowing again to close the deficit.
“Companies and consumers will not invest or spend if they expect the economy to go from bad to worse, and confidence will have been hit for six by yesterday’s growth figures.
“Restoring confidence to business and consumers will require bold action.
“The Chancellor should reverse the VAT increase. We were worried it would choke off recovery, but now we find the government has managed to do that even before the VAT hike has kicked in.
“He needs to call a halt to spending cuts that depress growth and take demand out of the wider economy.
“Next the Chancellor should end the public sector pay freeze. Holding back pay when inflation is rising is hitting the living standards of millions of low paid workers and depressing the wider economy. As a priority the Chancellor should ensure the government’s stated policy of a flat rate increase for low paid workers is made a reality.
“Ministers should also ignore the siren voices calling for the stripping away of basic employment rights at work. If people are even more fearful of losing their job or suffering pay cuts then that will harm the economy.
“Ministers are fond of calling their critics deficit-deniers. This is completely untrue. The problem is that the Chancellor fails to get the most basic lesson of 20th century economics – that the way out of a recession and depressed growth is by increasing demand in the economy. In the words of Nobel prize winner Paul Krugman, he’s a demand denier.
“Lastly the Bank’s MPC needs to build on Mervyn King’s strong defence of low interest rates by making even more clear that they are here until jobs and growth have been secured.”

Government has a reverse Midas touch on economic growth, says TUC

Cheryl Pidgeon

Commenting on the first estimate of GDP growth in Q4 2010 published today (Tuesday) by the Office for National Statistics – which shows that GDP output fell by 0.5 percentage points on the quarter –  Midlands TUC Regional Secretary Cheryl Pidgeon said: “Bad weather or not, these are truly awful figures, much worse than anyone expected. The government has a reverse Midas touch turning respectable growth figures into one of the sharpest falls on record.
“When this collapse works its way into the jobs market the impact will be severe. To implement drastic spending cuts when every sector bar production is in decline will hit business, send unemployment spiralling and make closing the deficit more difficult, not less.
“These figures underline the need for the government to develop a strategy for economic growth. Richard Lambert was absolutely right to identify this gaping hole in government strategy.”

The ONS GDP preliminary estimate is available at www.statistics.gov.uk/pdfdir/gdp0111.pdf