The double dip recession is a result of George Osborne’s ideological agenda and rejection of stimulus economics, writes Cormac Hollingsworth.
“Let’s get the economy moving to help us with the deficit,” David Cameron exhorted in the final televised debate before the 2010 election. The reality of his government’s economic stewardship has been the opposite. Rather than the growth his ideologically driven economic policies promised, growth stopped in Q4 2010.
Today, the UK economy is heading into a full-blown recession, and the coalition’s economic incompetence is finally revealed.
There will be much misdirection on the recession numbers today. First, it will be claimed that the eurozone ’caused the second dip’: the reality is that the Eurozone has grown faster than the UK since the coalition took over.
Second, the notion of a ‘technical recession’ will be bandied about, denying the reality that the economy is in big trouble. The OBR expected zero growth in the next quarter, so there will be no respite, and it could get worse.
To compound the errors, the economy is now even more imbalanced towards government and finance since the coalition has taken over. And while no-one today will think about the deficit, they should.
Last year’s growth scare saw the coalition abandoned balancing the budget in this parliament.
We now face the possibility that the OBR will predict that the deficit will be 6% of GDP in 2014-15. Thus far, the resilience of this government to its own incompetence has been impressive. After today, its economic credibility is done for.
With today’s figures, since Q3 2010, the UK economy has shrunk by -0.2%. As we have declined, the United States has powered ahead by up to 2.8%. This difference in growth is reflective of the ideological differences between the economic policies of each.
For Britain’s ideologically driven coalition government, it was the public sector that was responsible for the largest private sector crash since the 1930s.
Instead of adopting the stimulus policies of both America and the core eurozone countries, whereby their governments continued to intervene in support of the private sector, the coalition pulled the plug on public sector support, confident that the UK’s private sector would surge.
Sure enough, after the government pulled the plug on the public sector, the lights went out in the private sector too (as Table 1, right, shows).
Indeed, far from the promised rebalancing of our economy, imbalances have increased under the coalition. Under the coalition, the public sector, together with the business services sector, which includes the City, have expanded while the rest of the economy flounders: retail is struggling, and construction and production are shrinking.
Next quarter will provide no relief. The OBR formerly predicted that the second quarter would be flat at best. With expectations now revised lower, as Table 2 shows, the chances are that this won’t be a two-quarter ‘technical recession’.
There are broader consequences for our budget deficit. After the flatlining in 2011, this is the coalition’s second growth scare. Last year’s flatlining increased the 2014-15 predicted deficit from 2.1% of GDP to 4.5% of GDP, this year’s recession will have the same effect. It’s quite likely that come November, the OBR will predict that the budget deficit will be expected to be closer to 6% by the end of this parliament.
• OBR get growth projection wrong (again) 25 Apr 2012
• Osborne’s expansionary fiscal contraction has failed 24 Apr 2012
The reality is that there is still time to turn this around. We are still three years from the next election. If this coalition can do such damage in two short years, there’s plenty of time for it to be corrected. If we wait, it will cost us billions more in borrowing, and innumerable lost opportunities for our entrepreneurs and young people.