The opposition, press and economists turned on the government today for the UK's descent into a double-dip recession for the first time since the mid-seventies.
The opposition, press and economists turned on the government today for the UK’s descent into a double-dip recession for the first time since the mid-seventies.
As Chart 1 shows, Britain’s economy shrank 0.2 per cent in the first quarter of 2012, following a 0.3 per cent contraction in the fourth quarter of 2011. In all, since the coalition’s first full quarter in power – Q3 2010 – in the year-and-a-half since George Osborne’s spending review, national output has declined by 0.2 per cent.
Responding to today’s terrible figures (pdf), shadow chancellor Ed Balls described David Cameron and George Osborne’s economic credibility as being “in tatters”, contrasting the UK’s economic woes with the US’s economic growth. The US economy is now 0.8 per cent above its pre-crisis peak; the UK economy is 4.3 per cent below.
“We consistently warned that their austerity plan was self-defeating and that cutting spending and raising taxes too far and too fast would badly backfire. David Cameron and George Osborne arrogantly and complacently dismissed people who warned of the risk of a double-dip recession and the country is now paying a very heavy price. Their economic credibility is now in tatters…
“Far from the eurozone being to blame for Britain’s woes, it was only growth in the EU and the rest of the world which kept us from going into recession earlier. Excluding exports, the domestic UK economy has now been in recession for over a year.
“The chancellor needs to explain why America, which has taken a much more balanced approach with a jobs plan to boost growth, has more than recovered all the output it lost in the global recession while our economy is shrinking again… The longer this out of touch and incompetent government sticks with these failed policies, the more damage will be done.”
• OBR get growth projection wrong (again) 25 Apr 2012
• Osborne’s expansionary fiscal contraction has failed 24 Apr 2012
Telegraph economics editor Philip Aldrick wrote that Osborne’s growth plan had “self-evidently failed”, while The Guardian’s economics editor Larry Elliott said the chancellor stood accused of “over-cooking austerity and killing off the tentative recovery” that was under way when the Conservatives came to power in 2010.
Slow growth makes it harder for the government to hit its deficit-reduction targets and may well result in the UK having its credit-rating downgraded.
That would be a bitter blow for Osborne, since his entire economic and political strategy has relied on the UK remaining in the dwindling club of nations with a prized AAA rating.
Double-dip recessions are extremely rare in the UK. It is quite common for the economy to falter during a recovery with one quarter of negative activity but you have to go back to the mid-1970s, when the first oil shock in 1973-4 was followed by stagflation in 1975, to find a genuine double-dip downturn.
In the past, even during the 1930s, recoveries have been well under way by now. This time, despite the massive stimulus that has been chucked at it, four years into the deepest depression of the post-war era Britain is going backwards.
Output is more than 4% below its peak in early 2008, living standards are falling and there is no sign whatsoever of the much-heralded rebalancing of the economy.
And in the City, Vicky Redwood, chief UK economist at Capital Economics, told the Independent that even without the fall in construction, “output would have done no better than stagnate”, forecasting GDP will contract by about 0.5% this year.
“The main disappointment was the meagre 0.1% rise in services output – the surveys had pointed to services growth of 0.5% or more.
“Even if the underlying picture is stronger than the official GDP figures show, there is no guarantee that the recent pick-up will continue.”