We’ll get to the actual economics in a moment – to the questions of why the economy is flatlining and what it means for Rachel Reeves’ forthcoming budget. But before that, let’s take a moment to ponder something rather extraordinary.
The hackers whose cyber attack took down production at Jaguar Land Rover (JLR) a couple of months ago have single-handedly caused a fall in UK gross domestic product.
Were it not for the 28.6% collapse in car production we saw in September (save for the pandemic, the biggest monthly drop in car output in modern record), the UK economy would have grown by 0.1% that month. Instead, it fell by 0.1%.
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Now, there are many provisos. These monthly numbers are volatile at the best of times. And the JLR hack wasn’t the only thing going on with vehicle production in September. It so happens some van plants were also down that month.
Even so, even if you conservatively assume that only about half of the drop in output was due to the hack (which is a massively conservative assumption), the fact remains: hackers have caused a fall in official GDP figures, published only a few weeks ahead of the budget.
It is very rare – unheard of nearly – for a single company to be able to impact overall GDP numbers.
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That this episode has done precisely that says something – about the profundity of the problems the hack caused at JLR and its suppliers, about the concentration of Britain’s car industry (there used to be plenty more producers) but also about the relatively precarious position of the wider economy right now. After all, the main reason this cyber attack was the difference between rising and falling GDP is that GDP was so close to zero even before taking this into account.
And that says something deeper about where Britain’s economy is right now.
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Even when you ignore JLR and its travails, economic output is essentially flatlining.
After a relatively strong start to the year, activity is depressed. And that has a bearing on all of our lives. For one thing, it means we are getting better off less quickly.
Second, it has consequences for the public finances. The less extra money is being generated across the country (which, ultimately, is what GDP is measuring), the less tax revenue comes into the Exchequer and the bigger the deficit the Treasury faces.
Part of the reason the chancellor is expected to raise taxes at the budget later this month is that the Office for Budget Responsibility (OBR) – which produces the official government forecasts – is expected to cut its estimate for underlying economic growth, which, all else equal, raises the scale of the deficit.
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These are far from the only issues facing the chancellor.
She has to reckon with an ever lengthening list of things to be tackled: she needs to pay for the U-turns already performed by this government on winter fuel and benefits reforms, to address long term worklessness, to try to protect the capital spending she committed to only last year, not to mention dealing with the consequences of a global trade war. I could go on, but you get the point.
Achieving any of that with an economy growing at what was previously considered the “trend” rate of about 2.5% would have been hard enough. Achieving it with economic growth on a knife-edge is an extraordinarily challenging task – for any chancellor.
