Wednesday, April 27, 2011

U.K. Economy Has Stopped Growing

The U.K. economy grew by 0.5% compared to the previous quarter in the first quarter, according to preliminary estimates. That is in fact worse than it appears at first glance, because roughly the entire increase reflects a weather related bounce back from an unusually cold December.

Taking the weather effect, that likely lowered growth by 0.5% during Q4 2010 and increased it by 0.5% during Q1 2011, into account, Britain thus had two straight quarters of zero growth.

With nominal M1 growth (and M2 and M3) falling below zero and price inflation being high, this means that real money supply is falling fast, something that means that the risk is high that the current stagnation could turn into a double dip recession.