Awkward Questions for George Osborne

Minimally, George Osborne has three questions to answer following the negative growth figure published by the ONS. First, what proportion of the negative 0.5% is explained by bad weather? Although weather did play a role in the poor showing, nobody—I repeat, nobody—would put this result down entirely to weather (the BBC’s Stephanie Flanders said that even assuming normal weather, there would have been no growth). Even the most pessimistic observer last week was expecting a marginally positive growth result—plus 0.2% was the lowest figure heard.

Secondly, most commentators were expecting the real hit to happen this year in Q1 and Q2, given the negative impact on domestic private demand of the VAT rise which took effect a few weeks ago. Equally, with inflation running ahead of money wages, the real wage (ie, consumer purchasing power) is being eroded. Although Q1 growth in 2011 will doubtless bounce back a bit, it has to gain half a percentage point over the first three months to avoid being negative. If not, Britain will be back in recession—the much-feared ‘double dip’. Will Mr Osborne now admit that a double-dip is a real possibility?

Finally—and most importantly—what will he do about it? We’re not talking simply about growth. We’re talking about 2.5mn unemployed people which will almost certainly rise to 3mn or more in the next six months.  These people—particularly 1mn unemployed youth— are in real pain. As Robert Skidelsky and David Blanchflower reminded us in a New Statesman piece on 24 January[1. http://www.skidelskyr.com/site/article/vince-cable-is-working-the-coalition-isnt/], UK unemployment was 5.3 per cent under Labour in May 1979; as a result of Thatcher’s refusal to relent, it remained above that level every month for the next 21 years until July 2000.  Unless Osborne—in contrast to Thatcher—admits he’s wrong and changes course, he is creating is another lost generation. These dire growth figures together with Osborne’s initial response—‘a single icy month must not put us off balance’—confirm Britain’s worst fears.

No related posts.