Leache: We’re in for a rough ride

Graeme Leach, chief economist at the Institute of Directors (IoD), comments on GDP figures:

“We are experiencing ‘one L of a recovery’ instead of the classical V shaped economic cycle. The IoD has long argued that the legacy of the financial crisis, anaemic money supply growth, the squeeze on real take-home pay and an already low savings ratio meant that quarter on quarter growth over the 2010-11 period was likely to weaken.

“Even allowing for weather related effects, 4th quarter growth was at best flat. Moreover, the idea that output will bounce back sharply in the 1st quarter of 2011, needs to be tempered by awareness of the VAT hike.

“The 4th quarter figures will have two immediate impacts. First, they are likely to result in GDP forecast downgrades for 2011 – the IoD is forecasting just 1.3% growth this year. Second, talk of interest rate hikes will recede. The latest GDP and money supply figures make a strong case for a further extension in quantitative easing. We’re in for a rough ride.”