Labour’s Pressure for Plan B Grows
It has become almost standard procedure now that whenever growth figures for the economy are released, we get a series of certain events. First, George Osborne and David Cameron will remind the country that they always believed that the economic recovery would be ‘choppy.’ That is to say irregular, dynamic or characterised by poor parts. Moreover, Ed Balls would then emerge to attack George Osborne on the lack of strategy, putting the recovery at risk and hitting family budgets up and down the country. However, the other continuous event is more concerning and that is the rather flaccid growth of the UK economy.
Ed Balls has scathed on Mr. Osborne’s claime that “Britain is a safe haven,” calling on the Government to reverse its rise in VAT, and indicating the extent of the damage of the spending review. Mr. Balls said: “The economy has effectively flat-lined for nine months and this is very bad news for jobs, living standards, business investment and for getting the deficit down.” Mr. Balls’ concerns were echoed by left-wing think tank the Institute for Public Policy Research: “Outside of London, in particular, the recession continues to be felt and the UK economy might as well still be in recession, even if technically it isn’t.” Its director Nick Pearce even suggested that the growth of the UK economy will “barely reach “1.2%.”
Today, the IMF has met this trend by going below the expected growth figures that the Government has stated of 1.7% by claiming that it will be only 1.5% this year. However, one may not deny that this is optimistic considering the last quarter’s growth was a feeble 0.2% down from the 0.5% of the previous quarter. This comes as the CBI have already downgraded their forecast which was the same as the Government’s to 1.3%. There are those optimists that still claim that growth is there. This appears to be merely a semantic point, tantamount to saying that growth in the economy could exist if it was 0.01%. A minor positive for the Government is that there is an endorsement from the IMF, as they claim that the Coalition’s deficit reduction strategy is “appropriate.” The IMF is hardly going overboard with their endorsement and it would be worth qualifying this assessment. The IMF is unlikely to go gung ho and lambast any Government’s strategy. Secondly, the strategy of George Osborne is only worthwhile in the “present economic conditions.” This is the nearest indication that George Osborne does actually have some manoeuvrability to create contingencies for a ‘Plan B.’
The IMF has also warned of the dangers of inflation, and the worrying picture for unemployment in the UK. The assessment for inflation was that it would fall to 2% by the end of 2012 and growth at this point will be 2.5%. The IMF were also quick to point out that the uncertainty around this is widespread, noting that falling house prices should be of particular concern to the Government. A series of suggestions for helping growth also appear to have been shoehorned in by the IMF suggesting that the Bank of England could return to quantitative easing, tax cuts to boost spending are an option and that if the economy improves then interest rates should rise to combat inflation.
More statistics which compound these poor growth figures is that UK’s manufacturing sector contracted in July for the first time in two years. It is a damning assessment of the Treasury who are currently priding themselves on rebalancing the economy away from the financial services to a growth outside of the City of London. The Markit/Cips manufacturing purchasing managers’ index fell below 50 to 49.1 which manifest a contraction. What has become blatantly apparent, and what is frankly worrying about the state of growth in the UK economy is that the only accurate prediction so far has been the fact growth is and will be ‘choppy.’ Whilst this is the case, Labour continues to be the dissenting voice expressing disquiet, and it will be interesting to see how this economic stand-off ends.