The UK's Double-Dip

A blog about business and economics.
July 25 2012 8:35 AM

UK Economy Now Smaller Than When The Coalition Took Office

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A man stands beside the railings with a painting depicting British Prime Minister David Cameron waiting for Cameron's arrival to give evidence at the Leveson Inquiry into media ethics at the High Court in London on June 14, 2012

Photo by ADRIAN DENNIS/AFP/GettyImages

If you want to see what a really weak recovery lools like, cast your eyes across the Atlantic to the United Kingdom which is mired in a double dip recession with output having shrunk 0.7 percent in the second quarter. Sarah O’Connor and Hannah Kuchler for the FT observe that this is not only the third straight quarter of shrinkage, it means British GDP is lower than it was when the Conservative/Liberal coalition government took office.

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This is by no means exclusively the fault of the government, whose geographical position leaves it more vulnerable than the US is to the problems of the eurozone.

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But you're left with the fact that they chose to undertake an ideologically driven effort to effect a structural shift of the British economy out of producing public services and into private market production at the very same time that the UK's heavily financialized economy was forced to undertake other large shifts. They combined that with demand policies from the Bank of England that were totally inadequate given what they were trying to do on the fiscal side. And on top of that, they've raised a bunch of taxes for no reason at all that I can tell. It's a total mess.

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All throughout they've been eerily obsessed with the idea of keeping the UK's borrowing costs low. And on that front, mission accomplished. UK ten year bond yields are freakishly low. But even though team austerity has achieved what they wanted, they don't seem to understand how this works. A technologically advanced democracy that borrows in its own currency achieves super-low borrowing costs by plunging itself in a Japan-like pit of economic despair. So mission accomplished.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.