The danger behind the GDP figures

Figures released this morning showed Britain officially moved out of recession, with GDP rising 0.1% in the last three months of 2009.

So “Is it time to break out the champagne?” an interviewer on the BBC asked me.

The answer? No. 

It isn’t bad news in itself. UK GDP has fallen 6% since the start of the recession, so any suggestion that things are getting less bad is of course welcome. But Britain is far from out of the woods.

The unemployment numbers out last week were awful (see What’s good about the employment data?) as were the inflation numbers (see Why interest rates could rise sooner than you think). At the same time, unsecured bank lending is still falling and our financial sector – if you remove the gloss of quantitative easing – is in just as dismal a state as it ever was. The recession may be over in a statistical sense but the crisis certainly isn’t.

However, the GDP numbers aren’t just mildly misleading. There is also a possibility that they might be dangerous. Why? Because they might make policy makers in a new government think that things are good enough for them to stop worrying about recession and deflation and get on with sorting things out.

But if QE comes to an end and public spending is cut sharply at the same time, there’s every chance that the double dip we’ve been expecting will appear – and with a vengeance. Let’s not forget that the recession caused by Japan’s removal of stimulus measures in 1997 caused a new recession. A recession that was worse than the one the measures were trying to cure in the first place.