The government has ignored the IMF's warning that austerity is contributing to sluggish growth
GDP growth slowed to 0.4 per cent in the first quarter of 2016, down from 0.6 per cent in the last quarter.
Three of four key economic sectors — construction, production and agriculture — have shown fallen output, although growth in the services sector, to an extent, is absorbing the effects.
Chancellor George Osborne has, as predicted, blamed the uncertainty caused by the EU referendum for the slowdown.
‘It’s good news that Britain continues to grow, but there are warnings today that the threat of leaving the EU is weighing on our economy,’ he commented.
Although this has been the government’s response to any negative economic tidings in recent months, the analysis may be overly simplistic.
Lee Hopley, chief economist at the manufacturer’s organisation EEF commented that ‘’The extent to which this across the board weakening can be attributed to political uncertainty ahead of the referendum is open to question.’
While acknowledging that ‘referendum wobbles could make themselves felt in the coming months, she suggested that ‘global financial market volatility, stuttering world trade growth and challenges on the high street feel like more obvious explanations for the slowdown’
Of course, Brexit does pose significant economic dangers — OECD research published today suggests that market confidence will immediately drop if the UK votes to leave in June, with GDP taking a three per cent hit by 2020.
‘Leaving Europe would impose a Brexit tax on generations to come,’ said OECD Secretary-General Angel Gurría. ‘Instead of funding public services, this tax would be a pure deadweight loss with no economic benefit.’
However, by insisting that the referendum alone is to blame for slowing growth and rising unemployment, the government distracts from th
e effects of its own policies.
For example, the fact that construction output slowed in quarter one — despite the housing crisis — points to a government unwilling to undertake necessary investment in construction, which would both boost GDP and relieve the pressure on the housing market.
David Cameron’s claim in January that his government would be ‘rolling its sleeves up and directly getting homes built’ already rings hollow.
Additionally, Cameron and Osborne have refused to acknowledge the IMF’s warnings that austerity measures are contributing to a global growth slowdown and that countries with the fiscal space should take bold investment action.
In February, the UK was specifically advised that in the event of a further slowing of growth, it should ‘explore both revenue and expenditure measures, while protecting spending in priority areas, including healthcare, education, and infrastructure.’
That slowing of growth has now occurred, but instead of recognising the need to respond to sluggish growth worldwide with a proactive investment-based approach, the Treasury is blaming the Brexiters and sticking to its rigid economic plan.
While they may get away with it for another quarter, as the effects of the referendum are borne out, Osborne will face difficult questions if the slowdown continues into quarter three.
Niamh Ní Mhaoileoin is editor of Left Foot Forward. Follow her on Twitter.
2 Responses to “Osborne blames EU for GDP growth slowdown — but what about his policies?”
Adamski
Surprised the head of the OECD would take an openly pro-EU position. Whether the economy would do better on the outside in the long term is unclear since how can you model it? 20 years in the future say the graphs, holding all factors constant which they won’t be since the economy would change in response. In the short term of course it would be damaging and could restart the recession, when Brexit voters want the opposite, a faster recovery. I’d vote remain.
Mike Stallard
If we vote stay, as the Labour party wants, then on 24th June we will be absorbed into the EU. This will mean two things:
1. Our budget will come under the EU semester. Every year the bidget will be checked for us and approved.
2. We are currently approaching 2 trillion pounds of debt. It does not take a genius to realise that we will have to pull our belts in and the EU is very good at insisting on this. Ask any Greek.
The EU is not socialist. It is run by the big companies who control the lobbying system and a few second raters on the commission who see the EU as the Eurozone which must be protected at all costs.
For heaven’s sake wake up!