By John Charles Dyer, UK Correspondent
25 April 2013. It’s official. The Office for National Statistics (ONS) estimates the UK avoided the dreaded Triple Dip Recession -- at least for the first quarter of 2013. Based on 44% of the “required output determination” ONS estimates the UK grew 0.3% the first Quarter of 2013 over the last Quarter of 2012 and .4% over the first Quarter of 2012. The usual suspects celebrated the news as vindication of the Chancellor’s Plan A. But a cross section of economists and independent think tanks remain skeptical.
The skeptics include me. In this piece I will suggest a perspective I think more consistent with observable reality. The theme is, absolute numbers grow, but their value diminishes.
Consider Exchange Rate
I regularly convert US dollars into UK pounds. I’ve become very aware of the impact of fluctuating rates on the value of the converted currency.
In a prior FOI request I asked ONS how they account for these fluctuating rates in their estimates. ONS informed me they don’t, but they do adjust for inflation. I've asked ONS to confirm that is the case with the last figures.
From the perspective of one who makes and spends his or her money in the UK the impact of exchange may appear less important than inflation or subsumed in its calculation. But when one must consider what it will cost in outside currency (an asset) to buy pounds (a commodity), it's an important consideration and an indicator of the strength of the UK economy. Moreover, in the end, I as a consumer must still buy at inflating prices -- and pay taxes -- with pounds of fluctuating value.
So I regularly ask, what will it cost in US dollars to buy £4,000 for the month’s living expenses. I also regularly ask the trends and whether the timing’s best to take care of a US obligation rather than convert dollars into pounds to spend in the UK. That is in its small way just what transnational investors and businesses do when they make investment decisions.
Based on this experience I decided to look at the ONS headline figures through the prism of the exchange rates. I asked, what did it cost in US dollars to buy £4,000 per month in each of the quarters ONS compared.
The detailed work sheet can be found here Download Exchange Rate Worksheet .
Briefly, it cost me $650 more to buy £12,000 pounds during the last Quarter of 2012 than it did during the first Quarter 2013 and $241 more during the first Quarter of 2012 than the first Quarter of 2013. Restated another way, the £12,000 for first Quarter 2013 was of lesser dollar value than either of the comparison Quarters. The drop in value was 3.4% and 1.3% respectively. While the absolute numbers grew .3% and .4% respectively their value relative to the dollar shrank.
Does that put the .3% and .4% GDP growth figures into a different perspective?
Where else have we seen an increase in absolute numbers but a contraction in their value? Employment. Between 2008 and 2012 the net number of persons estimated employed at least one hour per week for pay increased 402,000, but the percentage of working age adults actually working for pay shrank from 59.6% in 2008 to 58.7% at the end of 2012. Moreover the majority of new employment was part time, for which the average wage was £155 per week.