Gross Domestic Product (GDP) decreased by 0.2 per cent in the fourth quarter of 2011, driven by weakness in the Production sector and the Construction sector, according to the Office for National Statistics.
The public sector strike on 30 November is likely to have had some impact on GDP in the fourth quarter. It is not possible to measure the effect on GDP directly.
Information from the ONS’s Labour Disputes Inquiry, which was published as part of the Labour Market release on 18 January, suggests that nearly one million working days were lost, representing about 0.2 per cent of the total number of working days for the public sector for the quarter. There are two categories to consider when thinking about the possible impact on output:
- The lost output or production of those sectors directly affected by the strike (eg health, education, public administration)
- The lost output or production of those businesses indirectly affected by the strike (eg employees having to take a day off to provide child care)
The effect of the first category on the official estimates does depend to some extent on how GDP(O) is measured:
- health sector output is in part measured by the number of operations and there are reports of delays as a result of the strike, thus reducing the number of operations (and therefore output) in the month. The impact is likely to have been small, even if we assume that there was no catch-up. A loss of one day’s activity accounts for about 1.5 per cent of activity in the quarter and the extent of the disruption – looking at the number of operations which were postponed – was relatively small when considering the total number of operations in one day. In turn, this is quite a small part (about 16 per cent) of the health sector
- education output is measured by the number of pupils, adjusted for attendance. In practice strike days are often made up or partly made up (eg by adjusting teacher training days) so that the overall needs of the curriculum are still met. There is no specific adjustment made for strike days in the official estimates so there is no impact on education output
- public administration is measured by the number of staff (on a full-time equivalent basis). The strike has no measured impact on the data
The overall impact of the first category on GDP is therefore likely to be small. The impact of the second category is difficult to assess but is likely to have resulted only in moving activity within the quarter.
Commenting on the latest GDP figures, which showed a decline of 0.2% in the fourth quarter of 2011, Graeme Leach, Chief Economist at the Institute of Directors, said:
“The tightrope walk between recession and recovery continues. We’ve taken one step towards a double-dip recession, and it’s now probably 50-50 as to whether we’ll take the second, with a fall in output this quarter as well.
“It’s important to stress that the 0.2% fall in GDP is not large and could be reversed as QE2 works through the economy. But even if output does increase in Q1 we’ll continue to experience the feel-bad jobless recovery for some time yet. Indeed, the combination of falling output and today’s MPC minutes suggest QE2 could be further expanded in February.
“The tipping point for recession or recovery remains economic developments in the eurozone. If the euro crisis gets worse, sustaining UK recovery looks almost impossible.”
