Some people want the British public to think that the economy is in such bad shape because there is not an Olympics every quarter. Friday's U.K. gross domestic product numbers make for odd reading. The economy shrank by 0.3 per cent in the fourth quarter of 2012. But the reasons trotted out for the decline are weak, to say the least.
True, Olympic ticket sales added 0.4 percentage points to growth in July and August of last year, according to the Office for National Statistics. That helped the economy to grow by 0.9 per cent in the third quarter. And the biggest North Sea oil field was shut for an extended period in the fourth quarter, which accounted for two-thirds of the quarter's GDP shrinkage. The fourth-quarter comparison is with the third quarter.
But if all it takes to decide whether the U.K. economy is growing or shrinking is a jamboree in the East End or housekeeping on an oil pipeline, things must be truly dire. Best to brace well in advance for the 2013 first-quarter data. Remember that there was snow in January.
One quarter's numbers should not be overinterpreted. Still, the real question is whether the U.K. economic parrot is not merely resting but is in fact dead. GDP is flat, regardless of quarterly swings, despite lashings of quantitative easing from the Bank of England and vague attempts at stimulus from the government (on infrastructure projects, mainly). The U.K. has regained only about half the output it lost in the financial crisis, and the economy remains 3 per cent smaller than its peak in the first quarter of 2008.
The U.K. is almost certain to lose its triple-A status. That may not affect the cost of borrowing – yields on 10-year gilts are just half of what they were seven years ago – but will be a kick in the shins all the same. Yet the FTSE 100 is at its highest for five years. Buy Britain, by all means. But why lend to it?