A deeply perilous moment for coalition economic policy
Appalling forecasts from the OECD predict almost no growth in Britain in the final half of the year, a hair’s breadth away from recession. If it is right UK growth during 2011 will be a paltry 0.8 – 0.9 per cent.
From Sep 2010, just before the chancellor’s Spending Review to the end of this year growth over 15 months will have been 0.4 per cent. In his emergency Budget last June the OBR predicted growth of 3 per cent from September 2010 to the end of this year.
Put another way, in the five full quarters since the month of George Osborne‘s Spending Review, the economy would have grown by one-eighth of the amount that was forecast in his first Budget document. So the Treasury will be hoping that the OECD is wrong. But I draw your attention to the Chancellor’s remarks to the City on Tuesday, paving the way for a downgrade to growth expectations.
Remember it is the OBR and Robert Chote who will decide the growth forecast. I fear we may be in a situation similar to that described in the Darling Book in 2008, where top Treasury officials gather at Dorneywood to decipher how a growth slowdown impacts upon tax receipts and therefore the deficit. As it happens, so far, tax receipts have held up. The deficit is on target. It is a bizarrely tax rich slowdown. Numbers like the OECD’s will blow that way off course.
The Chancellor seems to be adopting a slightly Brownian tone in finding the reason for this slowdown. “The idea that somehow its just what the UK government has done over the past year that is having just an impact in Britain is for the birds. That’s not what is going on in the world and its completely incredible to isolate the problems that we face in this economy with the problems others face,” he said today. He replied to my point that this sounded like the excuses he criticised in his predecessors, Osborne said that he was not shirking from the blame due to Britain’s debt-soaked economy, he was trying to deal with that problem.
Politically too much of the international cover so painfully and successfully arranged by Osborne a year ago, appears to have evaporated. The mood music coming out of the G7 process, is that the US, France, and possibly the IMF are starting to argue for the world’s economies to shift to addressing growth and demand and away from austerity mania. Is it a coincidence that no communiqué is planned to be released in Marseille tomorrow?
None of this means that the Chancellor is wrong per se. He’ll point to the stable financial position proving impressively attractive to the Chinese economic delegation he hosted today. They were itching to pour tens of billions of their surplus capital into Britain, and the Government deserves lots of credit for pursuing this so aggressively.
But it means that right now is the point of maximum danger for his approach and for any doubters in the Coalition. George Osborne better hope that Christine Lagarde remembers who backed him for the IMF job. But perhaps the policy imperative for growth from Obama and Sarkozy will be too strong.
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