OECD comes round to the view Osborne’s cuts are too fast and too deep

The OECD is starting to come round to Labour’s view of Chancellor Osborne’s cuts: they are too fast and too deep; Matthew Pitt reports from Parliament.

Just as President Obama failed to endorse the coalition’s deficit reduction plans today, the Organisation for Economic Co-operation and Development (OECD) is starting to come round to Labour’s view of chancellor Osborne’s cuts: they are too fast and too deep. The highly anticipated Economic Outlook, out today, warns that GDP growth figures for the UK are looking increasingly bleak.

After months of supporting the drastic and ruthless cuts, the OECD has had to admit they may be too much for the recovering economy.


For 2011, it has now downgraded its UK growth outlook from 1.5 per cent to 1.4 per cent and for 2012 from 2 per cent to 1.8 per cent, which is 0.3 per cent and a whopping 0.7 per cent lower than the OBR’s forecasts respectively.

On the same day as our hopes were dashed of an upward correction of Q1 economic growth, the chief economist of the OECD, Pier Carlo Padoan, warned the UK it may have to consider slowing down the pace of cuts if the UK economy continues to lag behind that of Germany, France and the aggregate of the eurozone.

This is especially worrying in light of the economy having flatlined over the last six months before the majority of cuts and tax rises set in. With no growth and a predicted continued rise in unemployment, the government will be spending more on benefits and will receive less in tax revenues as a result.

We are entering a devilish circle of low growth leading to higher borrowing, resulting in more cuts to meet the deficit target, which again brings about lower growth and so on.

Shadow chancellor Ed Balls underlined this today, saying:

“Slow growth and more people out of work and on benefits will make it harder to get the deficit down.”

Although the OECD still maintains its overall support for George Osborne’s fiscal consolidation, it is warning that he:

“…can slow down the pace over the next quarters if things turn out to be weaker than expected.”

Mr Osborne knows full well, however, that any gear change in his cuts programme will be seen by the public as the beginning of an alternative approach to the deficit – a Plan B.

Adding to Osborne’s woes is the expectation by the OECD that the Bank of England will have to increase interest rates by 50 basis points to 1 per cent towards the end of 2011 and then to 2.25 per cent in 2012 due to heightened inflation expectations. Being overly reliant on a loose monetary policy, the planned cuts will therefore have an increasing downside effect on the economy once borrowing costs for businesses and individuals rise.

Osborne’s allies, standing on the side of excessive cuts, are beginning to wobble in the midst of updated gloomy economic outlooks. It is not only him, however, that stands on shaky ground – it is also the future of our economy.

Perhaps he should therefore consider the analysis by the Institute for Fiscal Studies in its Green Budget for 2011, that Labour’s March 2010 budget under Alistair Darling would have returned the UK’s public finances to a sustainable position.

Admittedly, Labour still needs to propose what it would do in detail, but the right wing shrieks that there is no alternative are rapidly turning into a wimpy whisper.

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59 Responses to “OECD comes round to the view Osborne’s cuts are too fast and too deep”

  1. Johnnydub

    OK.. It’s the bankers fault…

    Except – Australia and Canada came through the banking crisis without any issues.. why?

    Effective regulation – they didn’t have a fool with a degree is Scottish Marxism or whatever tinkering with their regulation systems.. The US is totally corrupt I will acknowledge, but your lot seemed to like Fred Goodwin et al just fine…

    Anyway that’s the past.

    So the bankers caused a recession – agreed. Labour built an economy that couldn’t withstand one.

    So again blame the nakers, Tories whatever. But the majority of people in this country know different.

    And take note of Labour’s preformance in Scotland revenmtly. If your only policy is to go “Waaah, nasty tories etc.” you’ll get hammered in the polls…

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  3. Mathew

    Johnnydub

    Just one problem with your primary school level rant. The Tories wanted even less Regulation.

    Education, it’s what you need.

  4. jsam

    Canada’s banks are a sleepy cozy club of five. Why take risks? Did American and British bankers cash in? Do bears defecate near foliage? But glad to see even the most Toryish acclaiming better regulation. If we had a maximum wage it’d help.

  5. scandalousbill

    Johnnydub,

    You ask:

    “Except – Australia and Canada came through the banking crisis without any issues.. why?”

    Both Canadian and Australian economies differ from the UK economy in that there is a high proportion of Natural resource and commodities as the base of their economies. High commodity resource, and energy prices, (e.g. the mining boom in Australia, Tar Sands Oil in Canada) did more to offset the impacts of the Global Recession than did the policies implemented by either government.

  6. BenM

    The unthinking Tory trolls – Eds Talking Balls; 13 eastie and Johnny Dub – must have choked on their cornflakes when Obama said this yesterday:

    “A financial crisis that began on Wall Street infected nearly every continent”

    Whu-? The financial crisis started in Wall Street?! (under another mad rightwing fool, Geroge W Bush).

    Tory propaganda blames it on Gordon Brown! Who’s telling the truth? I’ll give you a clue – it’s the POTUS, not the useless Tory Party and its shills.

  7. Johnnydub

    OK.. Let’s have some reality here… RBS overextended itself massively…. Northern Rock and Halifax built business models that couldn’t withstand a change in the availability of wholesale finance… Dunfermline Business society?????

    Yes the US bubble popped the cheap thoughtless money flows.. The UK banks in question not having a resilient model did for them – when was the last time a UK bank went pop before.? In the thirties… So why didn’t any go under during the great Maggie driven liberalisation.? Because they were properly regulated… note I said properly not extensively etc..

    Look Gordon said “we didn’t appreciate how interconnected the banks were” – well OK… so if you don’t understand it why did you break what was previously working? Because he was an egotistical moron that’s why..

    As for Obama’s statement – I agree the banks caused a recession. But you’re ignoring the larger point.

    Brown loved being lauded as a model of fiscal propriety, when in reality he was pissing money up a wall, money that wasn’t really earned, it was bubble money

    When the bubble popped (even though Gordon had hubristically claimed he’d ended “Boom and bust”- that just confirmed he was a moron) revenues fell to a more realistic level and a massive fiscal gap opened up.

    Labour just have to have more of a policy position that saying cut slower.

    Can you not see the writing on the wall? If our credit rating gets downgraded we have to pay more debt interest and it gets harder to sell our gilts. So what you might say.. Well one outcome is that the government has much less money to pay on public services and another is that interest rates will have to go up and fairly sharply.. No right now one of the biggest things propping up consumption and the economy is the spending power that people with mortgages have because rates are so low. Take that out of the economy and a big recession ensues…

    The problem is again one of interconnectedness. The Labour policy says tot he rest of the world that we’re wouldn’t be serious about getting our economy in balance. And as they hold the gilts and buy the gilts they’re in a position to do something about it…

    I’m not a “heartless bastard tory” my parents need healthcare, the kids in my family need education etc. You can’t provide that if you bankrupt the economy. And Labour in their last two periods in power are 2 for 2 in doing exactly that.

  8. Ed's Talking Balls

    BenM,

    I won’t retaliate by calling you a member of the unthinking left, for that would imply that there is a thinking left.

    Remind me again just why it is prudent for a government to run up deficits in a boom…

  9. Daniel Pitt

    OECD comes round to the view Osborne's cuts are too fast and too deep: http://bit.ly/mJeui9 #ConDemNation

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