Early signs suggest Osborne’s gamble is not paying off

George Osborne’s ‘emergency budget’ was a huge gamble. The latest trade figures as well as consumer confidence and housing data show it's unlikely to pay off.

George Osborne’s ‘emergency budget’ was a huge gamble. He bet that the economy could absorb further tax increases, particularly an increase in VAT to 20 per cent, and swingeing cuts in public spending because private spending and exports would strengthen to fill gap. Unemployment might increase in the short-term, but eventually the private sector would create more than enough jobs to offset those lost in the public sector.

Unfortunately, the early signs are that he will be proved wrong.

The housing market has weakened in recent months and surveyors are now warning that prices will fall in the remainder of this year and again in 2011. Just about the last thing the economy needs over the medium-term is another house price bubble, but in the short-term falling prices can only hurt the economic outlook.

Business and consumer surveys suggest confidence is declining. It has not yet reached the point where it is sensible to talk of the UK being back in recession – but the trend is clearly in the wrong direction for those hoping that a strong recovery in private spending will boost the economy.

Price inflation looks set to remain well above its target level – and, crucially, well above wage inflation – for at least another year. As a consequence, households’ spending power will be eroded, dampening any recovery in consumer spending.

And the much-anticipated surge in exports has yet to materialise. True, figures released today did show that export volumes of goods in the second quarter were up 11.7 per cent compared to a year earlier. But import volumes were up 12.8 per cent over the same period. Global trade was depressed a year ago by the scale of the recession and now it is returning to more normal levels, hence the large increases. But there is nothing to suggest that the UK is performing relatively strongly.

This is also evident in the overall trade balance in goods and services, which in the second quarter of 2010 was not far short of the levels seen in 2007 – just ahead of the recession.

The Office for Budget Responsibility expects net trade (the difference between export and import volumes) to add 3.5 per cent to output growth in the UK over the next five years – an average of 0.7 per cent a year and equivalent to over one-quarter of the UK’s growth. Worryingly, there is nothing in the latest data to suggest that this is likely to materialise.

20 Responses to “Early signs suggest Osborne’s gamble is not paying off”

  1. Chris Horner

    RT @leftfootfwd: New trade figures show Osborne’s gamble is not paying off //bit.ly/bxHuFy

  2. Pen

    RT @leftfootfwd: New trade figures show Osborne’s gamble is not paying off //bit.ly/bxHuFy

  3. ToUChstone blog

    RT @leftfootfwd: New trade figures show Osborne’s gamble is not paying off //bit.ly/bxHuFy

  4. Rosanna

    RT @leftfootfwd: New trade figures show Osborne’s gamble is not paying off //bit.ly/bxHuFy

  5. David Nash

    my colleague Tony Dolphin on today's UK trade stats //bit.ly/agSjrM ht @leftfootfwd

  6. Gurten Brewn Not

    NEWS: Labour have now found 'the end to boom & bust' >> Osborne’s gamble is not paying off //bit.ly/bxHuFy #disingenuous #RETARDED

  7. Kerry Abel

    RT @leftfootfwd: New trade figures show Osborne’s gamble is not paying off //bit.ly/bxHuFy

  8. manishta sunnia

    RT @touchstoneblog: RT @leftfootfwd: New trade figures show Osborne’s gamble is not paying off //bit.ly/bxHuFy

  9. Anthony Fitchett

    RT @leftfootfwd: New trade figures show Osborne’s gamble is not paying off //bit.ly/bxHuFy

  10. Mark Stevo

    No comment on the m-o-m change?

  11. Kyle Grayson

    RT @leftfootfwd: Early signs suggest Osborne’s gamble is not paying off //bit.ly/bxHuFy

  12. Mr. Sensible

    Tells a story…

    I think that infamous treasury slide may be more accurate…

  13. Samuel Tarry

    @leftfootfwd have some sobering analysis of Osborne's flawed economic strategy as new trade stats are released: //bit.ly/bWP1oB

  14. mike

    hope someone turns upat coalition double act tomorrow re so called waste

    with 10 failurers of the coalition

  15. Bad news from the Bank of England puts the skids on Osborne’s slashernomics « A Thousand Cuts

    […] week has already seen house prices fall (without becoming affordable, as mortgage lending is squeezed) and retail growth slow markedly on […]

  16. Tom Miller

    RT @leftfootfwd: New trade figures show Osborne’s gamble is not paying off //bit.ly/bxHuFy

  17. Graham Jeffery

    Osborne's gamble with the UK economy isn't paying off //bit.ly/dAGnW4

  18. noelito

    ouch, this doesn't look too good //bit.ly/cj407k #fb (h/t) @leftfootforward

  19. talktone

    RT @leftfootfwd: Early signs suggest Osborne’s gamble is not paying off //bit.ly/cj407k

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