This week's news on UK economy growth.
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Olympic Games will boost UK economy, predicts Bank of England
16 Maywww.guardian.co.uk - sport
London 2012 will bring tourist boom and extra public spending that may see off double-dip recession, says Threadneedle Street
Britain's struggling economy will receive a much-needed boost from the Olympic Games this summer as more tourism and extra public spending lead to increased activity that could spell the end of the double dip recession, the Bank of England said.
In its assessment of the likely impact of hosting the Summer Olympic and Paralympic Games, Threadneedle Street said it expected output to be around 0.2% higher in the third quarter than it otherwise would have been.
After the dampening effect of an extra day off for the Queen's diamond jubilee, the Olympics are expected to cause a spike in demand between July and September that may spare the UK a fourth successive quarter of negative growth and bring the double-dip recession to an end.
Construction work is all but complete, so much of the spending associated with the Games had already occurred, the Bank said, but there was likely to be a further concentration of expenditure in the immediate run-up to and during the Games.
"The London organising committee of the Olympic Games (Locog), the body responsible for staging the Games, estimates it is likely to spend around £2bn in total, equivalent to around 0.5% of quarterly GDP. But by this March, Locog had spent only around £500m of that."
But economists are already warning that any benefit to the economy from an influx of foreign sports fans or Britons stocking up on cold beer and souvenir mascots is likely to be shortlived.
Staging the Olympics has little lasting impact on host countries' economic performance over the past 50 years, analysis shows. Research by Citigroup suggested an upturn in GDP in the six months before each Games tended to be swiftly followed by a downturn in the following six.
Professor Stefan Szymanski, an expert in the economics of sport at the University of Michigan, said: "In terms of an identifiable macroeconomic impact, I think it's hard to think of any good examples where it's shown up in the GDP figures. As economic events, they're not a big deal. Economics is about more mundane things like producing steel and cars and working in offices – we have Olympics to take our minds off the dull things that make the money."
Much of the spending on infrastructure, such as new sports facilities, tends to happen months or years before the Olympic flame arrives in the host country.
Other economic benefits are likely to come either from foreign tourists coming to see the Games and spending lavishly while they are here; or from local people splashing out as they watch.
But the domestic spending only represents a genuine economic boost if it would not be spent otherwise, on something else, as the consultancy Capital Economics points out in a report to be published on Thursday.
"Someone buying food and drink to consume at home while watching the Olympics might have otherwise gone to the cinema or furniture shopping. Or someone buying an Olympics T-shirt might otherwise have bought a normal T-shirt," says Samuel Tombs, of Capital.
He reckons Olympic ticket sales will add 0.1% to consumer spending in the third quarter of the year, with all Olympics-related spending amounting to 0.3%; but that if spending does pick up, it might just be followed by weaker than otherwise spending in the final quarter of the year, or in 2013.
As to foreign tourists, economists point out that many of the extra visitors might have come to Britain at a future date anyway, and will have merely brought their visits forward; while a large number of non-sports fans may be deterred from travelling to the UK this summer because of the Games.
As the Bank put it: "It is not clear to what extent tourism associated with the Games will displace some tourism that would have otherwise occurred."
Meanwhile, part of the boost may be offset by disruption to the day-to-day running of other business, as London's transport network suffers delays, and workers take extra leave to watch events.
The impact of the Olympics will be particularly difficult to disentangle, because it will follow a second quarter in which an extra bank holiday for the Queen's diamond jubilee will depress output.
The Bank of England said the evidence from the Queen's golden jubilee in 2002 and last year's royal wedding suggested the extra bank holiday in June would lead to lower growth, but the loss of output would be more than made up by September.
"The monetary policy committee's central judgment is that the Office for National Statistics measure of growth is likely to be around half a percentage point weaker than underlying growth excluding these factors in the second quarter, but could be stronger by a little more than that in the third quarter.. Growth will then be a little weaker in the fourth quarter as the ONS measure of output returns to its underlying level."
The Bank said it had studied the impact of the Sydney Olympics in 2000 on the Australian economy. The Reserve Bank of Australia estimated the boost to GDP growth that quarter at about 0.75 percentage points.
"A similar size and pattern of spending in the UK related to the Olympics would provide a boost of around 0.2 percentage points," the Bank of England said.
Little gold at games
Sydney 2000 The Bank of England drew on research by the Reserve Bank of Australia, suggesting the Sydney games in 2000 added a total of 0.75 percentage points to GDP – a fairly modest boost.
There is also detailed data from Australia showing the impact on different sectors: clothes shops fared well, presumably as buyers stocked up on souvenir T-shirts, and cafes and restaurants also saw a boost. However, the benefit was heavily concentrated in New South Wales, the region where the games were held, rather than spread across Australia; and retail sales fell back sharply in the months after the Olympics. As for visitors, Australia saw the number of foreign tourists decline in the three years following the games.
Athens 2004 The Greek government's all-out approach to completing facilities in time before it hosted the Games in 2004 has since been regarded as one of the factors contributing to the country's deep debt crisis – though there is no official estimate of how much the tournament cost.
In the event, not only was the bill high but fears of overcrowding helped deter many potential visitors from attending. The number of tourists travelling to Greece in 2004 was actually 10% lower than a year earlier; and many of the country's smart sports facilities have since become very dilapidated.
Beijing 2008 Emerging economic powers have often used the hosting of a great sporting event to signal that they are open for business and part of the global club. Beijing's turn in 2008 sent a strong message that China was a major international player.
The impressive display was not cheap – it is thought to have cost more than £20bn. If the Chinese authorities had hoped to attract a rush of curious visitors, they failed: the number of tourists travelling to China fell in 2008. However, Beijing may have been more interested in the more nebulous public relations impact of putting on a lavish show, as pictures were beamed around the world of the impressive opening ceremony.
Heather Stewart
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If the UK economy was a football team it'd be fighting relegation
16 Maywww.guardian.co.uk
Like any manager who has spent big without results, Mervyn King can trot out reasons for the Bank's poor forecasting record and inability to hit the inflation target
It's been a while since Sir Mervyn King used a footballing analogy to flavour his opening remarks at the Bank of England's inflation report press conference, but the Aston Villa-supporting governor was back on form today.
Uncertainty, he said, could sometimes add to the spice of life, as with the conclusion to the Premier League last Sunday, but it had the opposite effect on the economy. The risks associated with the crisis in the eurozone are making it tougher for the monetary policy committee to chart the right course for the economy.
King did not elaborate on which Premier League football team the UK resembled. Certainly not Manchester City, given that output is still 4% below where it was when the recession began in 2008 and is not projected to reach its previous peak until 2014. That's serious relegation form.
What's more, the recent results of Threadneedle Street FC have not been mightily impressive. As usual, King had to admit that growth had turned out to be lower than expected three months ago while inflation was higher. It will now be the middle of next year before the annual increase in the cost of living comes back down to the government's 2% target. Interest rates have been pegged at 0.5% for more than three years and £325bn has been pumped into the economy through quantitative easing, but the economy has flatlined for the past five quarters.
Like any Premier League manager who has spent big without any marked improvement in results, the governor can trot out a whole host of reasons for the Bank's poor forecasting record and its inability to hit the inflation target. Higher VAT, the depreciation in sterling, rising commodity prices, the fact that the euro is – as the governor so vividly put it – "tearing itself apart": all these have made it unrealistic to expect the MPC to keep growth close to its long-term average and inflation at 2%.
There's something in this, of course. King is managing an economy which, like his beloved Villa, has seen much better days. The economy has deep structural weaknesses and has been through a colossal banking crisis that has caused the deepest recession since the 1930s. The slow-motion disintegration of the euro means there is no obvious reason why Britain should go leaping up the growth league table.
Yet, in some ways, King should count himself lucky. Very few owners of Premier League football clubs would be willing to accept such a poor run of results. That includes Villa, who sacked their manager within 24 hours of the season ending.
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Bank of England downgrades UK growth forecast
16 MayThe Seattle Times - Business & Technology
The Bank of England has trimmed its growth forecast for the U.K. economy and warned that inflation will remain above target for another year - assuming Britain isn't knocked off course by turmoil in the eurozone. -
Bank of England Cuts UK Growth Forecast
16 MaySky News - Business
The Bank of England has cut its growth forecast for this year to 0.8% from 1.2%, as it warned the UK economy will not return to pre-financial crisis levels before 2014. -
UK unemployment fall raises hopes recession-hit economy on mend
16 MayThe Guardian World News
Number of jobless people falls to 2.63 million, the lowest since last summer, official figures from the ONS show
Unemployment declined by 45,000 in the three months to March, raising hopes that Britain's recession-hit economy is on the mend.
The total number of jobless fell to 2.63 million, according to the Office for National Statistics, its lowest level since last summer. That brought the unemployment rate in the first quarter of 2012 down to 8.2%, from 8.4% in the last three months of 2011.
Employment minister Chris Grayling seized on the news as a "step in the right direction".
The ONS said the more timely claimant count, which measures the number of people receiving jobseekers' allowance, had also fallen, by 13,700 in April, to 1.59 million.
The news was welcomed by the coalition, which has faced sharp criticism over its handling of the economy since it was confirmed that the UK has slipped into a double-dip recession.
"I know I never place too much store on a single month's figures because these numbers go up and down and we are clearly living in difficult times economically, but any improvement in the labour market is very welcome," Grayling said.
However, there were still clear signs of strains in the labour market, with the number of people working part-time because they are unable to find a full-time role hitting a record high of 1.4 million.
Paul Kenny, general secretary of the GMB union, said: "That there are 2.63 million people without jobs shows the extent to which the government's gamble with the economy has failed. So instead of borrowing to support the economy and to continue the recovery the government has had to borrow to fund the recession."
The squeeze on household spending power has also continued for those who have managed to stay in work, with average pay excluding bonuses increasing at an annual rate of 2% – much weaker than the 3.5% rate of inflation.
The ONS said that bonuses had been lower in the first three months of 2012 than last year, "particularly within the finance and business services and manufacturing sectors," pushing annual pay growth across the economy including bonuses to just 0.6%.
Youth unemployment also declined, according to the ONS: there were 1.02 million 16 to 24-year-olds looking for work in the three months to March, down by 17,000 on the previous quarter. However, the unemployment rate for this age-group was still 21.9%, more than two-and-a-half times higher than for the workforce as a whole.
Alan Clarke, of Scotia Capital, said the improvement in the jobs numbers pointed to a strengthening in the overall economic outlook. "The labour data suggests that the recovery is ticking over quite nicely, though it would be foolhardy to get complacent given that the risks facing the economy are skewed to the downside."
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Bank of England to cut UK growth forecast
16 MayTelegraph - Finance
The Bank of England will paint a gloomier view of the UK's recovery when it gives its first assessment of the economy's prospects since it went back into recession in today's inflation report.
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UK economy ailing, BoE seen keeping options open
16 MayReuters - UK Top News
LONDON (Reuters) - Bank of England Governor Mervyn King is seen leaving the door open for more support for Britain's struggling economy on Wednesday, prompted by escalating dangers from the euro zone.
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Austerity crushes UK economy more than previously thought
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Ya don't say? What a shock to hear that austerity is failing miserably because the GOP keeps telling us that it's the only thing that will save America. As long as you ignore the fact that jobs growth is better under Obama than it was under Bush and that austerity keeps dragging down the UK and Europe, austerity is probably great. Ignorance is bliss.Britain’s economy may have shrunk more... -
The Queen's Speech and the digital economy
11 MayNew Statesman
Start-ups will cheer, but our copyright system remains a mess.As soon as the Queen began to list her government’s priorities on Wednesday it came as no surprise to hear that the Government’s top priority in the next parliamentary session is going to be delivering economic growth. When the Government comes to look at which industries that growth will come from, they will undoubtedly turn to the growing potential of digital businesses and the Internet.
The UK economy has the most Internet-dependent economy of all the industrialised nations. A study by the Boston Consulting Group found that the Internet is currently worth £120bn to the UK Economy, or 8 per cent of GDP, and is forecasted to rise to 12 per cent by 2016. The only other nation coming close to this high a percentage was South Korea with 7.3 per cent. We are world leaders in digital start-ups and SMEs across the UK are the job creators and wealth creators of the future.
The Government signalled in the Queen’s Speech its plans to introduce some really helpful measures for digital businesses. The Enterprise and Regulatory Reform Bill being introduced to Parliament holds some real potential. We understand the Government intends this to be a wide ranging bill and will include key issues such as employment regulation, which is a huge concern for a small business needing to scale up rapidly. This will definitely be one to watch as there is a great opportunity for the Government to provide real benefits to startups and SMEs. Business owners face heavy administrative burdens and significant risks if they get it wrong, so allowing entrepreneurs to do what they do best and grow their businesses more easily will help push forward the growth the UK desperately needs.
Also included was a reference to the much-trailed Draft Communications Data Bill. This refers to plans to allow intelligence agencies to collect data on communications, including across the Internet, also known as Communications Capabilities Development Programme (CCDP). The bill is likely to come up against significant opposition, and not just from free speech advocates. We are yet to see the details of the plans but there will be key questions over who the financial burden of data retention will fall upon, and whether Government intends to break SSL, the system used for secure communications which underpins businesses and e-commerce sites.
However, absent from the speech was any reference to reforming Britain’s outdated copyright law. The purpose of intellectual property protection is to foster innovation, but many aspects of the current copyright regime are having the opposite effect for digital businesses. Innovative entrepreneurs are creating brilliant new models for distributing creative content, yet they have to spend too long navigating complicated licensing schemes rather than developing and growing their business.
Implementing recommendations from the Hargreaves Review, commissioned by the Prime Minister in 2010 and accepted by Government last year, will allow today’s technology start-ups to compete with their European and US rivals.
The Queen’s speech is designed to set the parliamentary agenda, but Government and Parliament are still free to respond legislatively to issues as they arise. We hope they will realise there has never a better time to reform copyright law than now. The recommendations are raring and ready to go and they will allow Britain’s vibrant digital businesses to be able to harness the web’s potential to contribute to deliver the vital economic growth the UK economy needs.
