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Brown was wrong: Britain's economic growth only 1.75% not 3.5%

by jandsm Mon Dec 5th, 2005 at 02:05:11 PM EST

In a surprising move, the British chancellor Gordon Brown annouced he got it comepletely wrong: Compared to a preojected 3.5 percent of growth, Britain only generated a mere 1.75 percent.

The Guardian sums it up:

Gordon Brown today blamed a "tough year" for forcing him to admit economic growth was only half what he predicted in March's budget - putting revised estimates in his pre-budget report down to rising oil prices and a flat housing market.

The chancellor scaled back the prediction he made in March for UK economic growth this year from between 3% and 3.5% to just 1.75%, calling 2005 "the toughest and most challenging year for the economy"

 Meanwhile Mr Brown's predicted deficit for 2005 - the "black hole" - was, at £10bn, nearly double the £5.7bn he forecast in March.

Sounds pretty much continental European, doesn't it?

Here is some comment.

From THe Guardian:

These are the best of times and the worst of times for Gordon Brown. On the one hand, he is now all but universally accepted by his party and fellow Labour MPs as a prime minister-in-waiting. His pre-budget report this afternoon was received as such - not merely a chancellor's speech but a statement of prime ministerial intent.

But these are also treacherous times for Brown. The economic outlook is glum, forcing the chancellor to revise his forecast of annual growth for the second time in four months - now down from 3.5% to a pessimistic 1.75%. Today he was forced to admit that borrowing will be up, while some spending will have to be "capped". What's more, just as the numbers are turning against him, so is the domestic politics: now, after eight years waving aside his Conservative shadows, Brown faces a rejuvenated opposition, with George Osborne's spirited attack on him today a taste of the punishment to come.

And the FT's Robert Shrimsley:

ordon Brown has a golden rule: never apologise.

Sometimes however, the scale of the error is just so obvious that a chap has to stick out his chin and come before you in all his naked humanity and admit that, yes, he's made a mistake. There is much advice on how to make a virtue of this. The carefully calibrated acknowledgement of one's fallibility can go down terribly well if performed deftly. The public warms to someone who is big enough to admit he is not perfect. Monday was that day for Gordon Brown, and so the chancellor strode manfully into the Commons chamber and did...no such thing.

I think the proper punishment is execution.. but something nice.. no burning body electrical chair...

If GB is bad I can not image what a Tory government would do.. And  I have no still come to any conclusion about what I want to happen in the UK.... It is basically more left-wing in some sense but more right-wing on the economic.. nothing to see there.. I guess that makes me wish for the Liberal-Democrats???

I am lost.. I need a light.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Dec 5th, 2005 at 02:48:36 PM EST
There is no hope. The UK is locked into a rightward spiral, likely for another 10 years.

When your "party of the left" is co-opted to the right by Mandelson et al. and it's a two party state, things start to look grim.

The Liberal Democrats could indeed be an alternative, but the odds are stacked against them, much like they are against a surfer who faces a tsunami.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Dec 5th, 2005 at 05:01:21 PM EST
[ Parent ]
We must have some hope.. somehow... After all, the government is center-left on social issues...is there any way to change it in foreign policy, civil liberties and some aspects of the economy? It seems that the answer is no, but who knows.. what about a Gordon Brown government?

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Dec 5th, 2005 at 05:22:24 PM EST
[ Parent ]
They are the kind of social left that I can't find any comfort in: intrusive, controlling, deeply illiberal. Their solution to every social problem is to judicialize and penalize.

Sure, they have restored part of the funding of social programs that the Tories took away under Thatcher, but their approach to government is terrifyingly authoritarian.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Mon Dec 5th, 2005 at 05:31:50 PM EST
[ Parent ]
Indeed. Would that change with a GB government?

I think foregin policy will not change, I think the economic policy is not that bad... so the question is if this illiberal component will be eliminated...with GB. Less authoritarian?

I have no idea if this would be the case or not.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Dec 5th, 2005 at 05:43:36 PM EST
[ Parent ]
On all accounts I experience(d) them, the rules for GB are getting messier and messier. Perhaps they were even worse than the Dutch, where you need to go thrice to the council house: first for enquiry what papers to bring, secondly to bring the papers and third to bring the papers they didn't tell you about to bring.

It was practically impossible to open a simple bank account in England for a foreign student...

Someone told me, "The Brits thrive only in one skill, and that is managing".

by Nomad on Mon Dec 5th, 2005 at 07:18:02 PM EST
[ Parent ]
What are the expectations for the other main European states right now?

I know for Germany, it's 1.0%.

What about France, Italy, Spain and Poland?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Dec 5th, 2005 at 04:13:25 PM EST
The expectation for France has actually been increased from 1.4% to 1.6-1.8% if I remember correctly. Spain has 3+% growth. Italy, not so sure.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Dec 5th, 2005 at 06:25:40 PM EST
[ Parent ]
According to the EU Commission's November calculations, it will only be 0.8% in Germany in 2005. Finance Minister Hans Eichel had a sad record of overestimated economic growth and, hence, huge budget holes.
by Saturday (geckes(at)gmx.net) on Tue Dec 6th, 2005 at 03:32:58 AM EST
[ Parent ]
The Commission report you refer to was released November 17th - but I am using newer extrapolations based on the detailed Q3 GDP data released 22 November by Destatis. (If you add up the numbers - Kettenindex, I chose seasonally not adjusted -, Q1-Q3/2005 GDP already grew 0.84% over Q1-Q3/2004.)

Altough I'd like to see the Q3-numbers-updated predictions for Spain, Poland and Italy too (especially the latter), for now here are the expected 2005 GDP growth figures in the report you led me to:

  • Spain: +3.4%
  • Italy: +0.2%
  • Poland: +3.4%

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Dec 6th, 2005 at 06:21:32 AM EST
[ Parent ]
I also found a 30 November EU collection of Q3 GDP data. I didn't knew Finland is (was) in trouble!

(I also saw Hungary's is missing - checked the Hungarian statistical office's page, learnt it will only be released three days from now; but also found that in October, the revised 2004 data was released - with an up-revision by 0.4% to 4.6%! Maybe the ongoing deficit spending here is not a total failure...)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Dec 6th, 2005 at 06:38:03 AM EST
[ Parent ]
Corporate tax is likely to be better than expected, thanks to higher profits, notably in the oil sector, where the drop in production is small compared to the increased oil prices. The oil tax windfall, on an oil production of about 1 billion barrels (and a similar volume of gas), is equal to several billion pounds, a not unsignificant amount.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Dec 5th, 2005 at 06:28:11 PM EST
Right.  And this is an important point.  Brown will probably be able to capture some extra revenue with the increased oil tax.  However, remember that the inelasticity of demand for oil means that companies can more easily dump the cost on consumers, which will dampen demand in other areas.

Now, this problem is less severe in Britain than in America, because Britain actually has a public transportation system (imagine that!), allowing for some more consumer choice.  So there are a few more alternatives.  What little public transport you find in the average American town or city is so pathetic in its inefficiency (at least in my experience) that such a tax inevitably falls on consumers, almost in whole.

The FTSE is still at a fairly high level, I believe -- up nearly one thousand points over the twelve-month period.  So, as you pointed out, tax revenues related to the corporate world and investment should be reasonably strong.  How long that may continue, I don't know.  The New York Times seemed to think that, even at such heights, there was still room for growth.  They tend to have decent economic analysis, in my experience, though not on par with The Economist or The Financial Times.

Britain may be on the front-end of a recession, or it may swing back into a strong expansion.  But with a relatively tight labor market, the odds of seeing growth rates comparable to those seen in previous years under Labour are not high.

One way or another, borrowing isn't outrageous in Britain, and its national debt is very low compared with other countries of similar development, so Brown has a little bit of breathing room.

I notice, reading the BBC's "Have Your Say" section, that the public seems to respond more to deficits than the American people -- a good sign, in my opinion.

I'm tempted to give Brown the benefit of the doubt, especially given the Tories as the alternative.  I have no trust in David Davis.  He's got no idea what he's talking about and his militant stances on Europe and taxes are more than a little frightening to me.  Cameron seems like a decent choice, especially given his more-liberal positions of economics and social/cultural issues, like drugs, but I don't know a lot about him, honestly.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Dec 5th, 2005 at 09:36:13 PM EST
[ Parent ]

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