Is the government going to create a recession out of thin air? This morning’s GDP figures from the Office of National Statistics are dire, showing that the economy contracted by 0.1 percent in October, following a similar fall in September.
We are still a long way from a recession being officially called – that would only happen after two quarters of negative growth. Despite today’s figures, the economy still managed to grow by 0.1 per cent in the three months to October, so it wouldn’t be until next spring at the earliest that we could officially fall into recession. Nevertheless, it is remarkable how quickly that confidence has crumbled. A week after Labour came to power in July, the ONS published growth figures showing that the economy had expanded by a strong 0.9 per cent in the three months to May. It seemed that a corner had finally been turned, and that Labour would be the lucky inheritor of much better economic times.
Just five months on, the sudden acceleration in growth seems to have been snuffed out. This is especially true in the production sector of the economy. While the service sector was flat in both September and October, manufacturing has had a truly miserable month, plunging by 0.6 per cent, with construction falling by 0.4 per cent. Britain’s industrial decline continues to be alarming – since 2022, mining and quarrying is down 29 per cent. So much for the predicted onshoring of manufacturing which was supposed to occur as a result of the pandemic, which showed up the perils of long supply chains.
No, manufacturing continues to drift overseas, and it is not hard to see why. Britain was revealed last month to have the highest industrial energy prices of any country for which the International Energy Agency (ISA) supplies data. The blast furnaces at Port Talbot are gone, car-manufacturing has been squashed partly because of the Zero Emission Vehicle (ZEV) mandate, which demands increasing proportions of vehicles are electric-only. Car-makers have had to restrict sales of petrol and diesel vehicles – and Stellantis last week announced the closure of the Vauxhall factory at Luton, which it blamed partly on the ZEV.
Industrial decline cannot be laid entirely at the door of the present government – clearly the ZEV and other net zero rules pre-dated Starmer’s arrival at No. 10. But what this government has done is add a serious burden on service industries (as well as manufacturing ones) in the form of the rise in employers’ national insurance (NI) contributions. The effect is especially pernicious at the lower end of the earnings range – thanks to the salary threshold at which employers’ NI becomes due falling from £9,200 to £5,000. If you employ a part-time worker on £10,000 a year – as many service industries do – the cost to the employer will rise by £600 a year. Employers have been warning of just how serious this is for them, and how it will lead to job losses, or to fewer jobs being created. We must wait until April 2025 figures are released to see the impact of this measure.
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