Belfast Telegraph

How are we going to escape dire straits?

By David Elliot

As the mood of the nation lifts ahead of the start of the Olympics we have been kicked on the shins by a set of GDP figures which paint a gloomy picture.

The 0.7% drop in the UK's output may not sound like much but it's the equivalent to being at the 80-metre stage of a 100-metre race when everybody else crosses the line.

Indeed, if it weren't for the fact that the other runners are struggling with injuries to their banking systems - a painful condition which requires bed rest and a regular course of antibiotics - we would barely be at the halfway mark.

If there were ever any doubts that we're in the midst of a double-dip recession - and a deep one at that - then yesterday's figures have erased them and refocused attention on the troubles in the construction sector.

We in Northern Ireland certainly aren't strangers to the latter problem but even the most pessimistic commentators weren't ready for a 5% drop in output from the construction industry.

Worringly, the builders from these shores who are weathering the storm better than most are the ones who are travelling across the Irish Sea for work, so this figure won't be welcomed by them - nor by those in the manufacturing sector who have had a second quarter that was just as tough.

The most obvious question is what should the government do now to stimulate growth - or even just to stop the ongoing contraction?

That, unfortunately for all of us, is a difficult question for Chancellor George Osborne to answer because when he looks in his armoury he'll find nothing more than a broken catapult and some rusty bullets. The usual weapon of choice - by the Bank of England, supposedly, rather than the Chancellor - is interest rates, but that hasn't been an option ever since the base rate was reduced to 0.5%.

The International Monetary Fund wants a level of 0% and this latest insight into the gummed-up workings of the UK economy might be the trigger for the central bank to do something it has so far been reticent to do.

The other is to print more money, but that has not exactly been a huge success so far and could be the perfect storm as far as inflation doom mongers are concerned.

That's because rocketing prices for commodities are expected to lead to a hike in the price of food in the next few months and adding more money into the system through quantative easing could very easily send inflation through the roof.

So George will need to be clever if he's to guide us out of the current gloom and, as things stand, the Bank of England could well take heed of that great Dire Straits song and offer money for nothing. Apologies if that song stays with you for the rest of the day now.

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