Tuesday, 25 January 2011

The storm clouds begin to burst

Sorry for the lack of recent posts, but I've been travelling around to archives and the like. More on this tomorrow (or the next day, depending on Virgin Trains' internet connection).

But I felt I had to break my momentary silence to comment on today's economic growth figures. They're dreadful. The economy shrank pretty fast at the end of last year. The freezing weather did make things worse, but even without that growth ground to a standstill. George Osborne (above) will try to look confident in public. In private a chill will have run down his spine.

You won't find any shock here. As some of us have been arguing for some time, the Government's main macroeconomic policy thrust is just wrong. There's no need to cut this far, this fast - though Labour's confusion on the matter has hardly been all that impressive either.

There'll be a temptation to crow today among the critics.

But you can't really blame the slowdown towards the end of last year on 'cuts'. Most of them hadn't taken effect yet, and the amount of cash drawn back out of the economy through 'fiscal tightening' was rather small by December. The economy often stutters as it emerges from the doldrums, as it did in 1982-83 and 1993-94. And manufacturing is roaring ahead, driven by a weak pound - the recent strength of which (anticipating interest rate rises) will now be reversed.

Even so, all that makes the way ahead seem even more perilous. The main impact of the Government's budgetary policy is just about to hit - with the VAT rise on consumption right now, and from April, in massive job losses across the public sector. And Chancellor Osborne has loaded his cuts equally across this Parliament, meaning years of ball-and-chain 'drag' lie ahead of us.

It's a frightening prospect. Normally, I'd say 'weak growth now, bounceback next quarter in the spring'. But does anyone seriously think consumers will go on the rampage in the shops as prices rise, households will feel emboldened as house prices fall, private employers can easily make up £40bn of cuts to spending every year, or exports alone will tug us out of danger anytime soon?

No? Me neither.

There'll almost certainly be growth across 2011 - perhaps at a not-unhealthy rate by the end of the year. But the dangers of a very slow and painful climb upwards are increasing by the day.

This is one of many clouds that's beginning to burst on top of the Conservative-led government. Andy Coulson, No. 10's press man, walks out in a scandal that will run and run; NHS reforms run into determined opposition; Downing Street orders a u-turn on prisoner voting. Government looked easy in that Cameron-and-Clegg garden love-in last May. Experts like your correspondent said it wasn't. Now they know it isn't. For now, the thunder, lightning and rain will grow in intensity.

That's for further reflection. Here's today's moral: want to run down the deficit? Don't do it like this at home, kids.

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