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.’
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.
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