It has now been confirmed, the UK economy contracted in the fourth quarter by 0.2%. Leading the contraction was investment. This is important because much of the supposed logic of stimulative austerity was based on the incredulous belief that public austerity would spur business confidence and thus investment. As per an interview with the FT:
Chris Williamson, economist at Markit, said the drop is likely to be an indicator of business confidence. “One of the most worrying aspects was a 5.6 per cent decline in business investment, suggesting that companies became increasingly worried about the economic outlook.”
So much for the pixie dust of austerity. Interestingly, what kept the contraction in check was growth in consumer spending. The down side, however, is that consumption shifted to necessities suggesting not an increase in consumer sentiment but a hunkering down. The inevitable consequence of contracting investment along with public sector austerity is an eventual decrease in employment and thus consumption. Y = C + I + G + (X-M). That will leave exports to do all the heavy lifting. The problem is that austerity across the OECD has meant that much of the advanced capitalist zone is relying on exports doing the heavy lifting. Which, in the aggregate, can’t happen.