'Stagflation' Is Back and the Prospects Bleak ; Yesterday's Gdp Figures Raise Fears of a Double Dip Recession. Nigel Jump, South West Rda Chief Economist, Assess Prospects

Summary

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The 0.5% drop in real GDP was more negative than expected and, while the fall may be mostly explained away by the disruption to economic activity caused by the snow and icy conditions experienced for most of December, it still shows how vulnerable the current recovery is to shocks. The numbers may, of course, be revised to be less negative over the next few months but this does not negate the overall sluggishness of the economy at this time.

Usually, economic recoveries enjoy a rapid upturn after a deep recession such as we have just experienced. This time, the failure of aggregate supply to follow the usual postrecession pattern is a cause of concern as we enter a year of higher taxes and downward pressures on real incomes, especially as, despite extremely low interest rates, monetary policy no longer seems to be having any positive effect on aggregate demand.

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Extract

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'Stagflation' Is Back and the Prospects Bleak ; Yesterday's Gdp Figures Raise Fears of a Double Dip Recession. Nigel Jump, South West Rda Chief Economist, Assess Prospects

The positive news is that production stayed buoyant through the last thr...

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