Reckless Gamble with UK Economy

Today was the day when George Osborne lost Tory economic credibility and the Conservative General election pitch was left in tatters

Labour have warned for close to 18 months that the Tory policies of over aggressive cuts and lack of idea on growth could very well lead to a return to negative growth. A reckless gamble which is risking growth and jobs in Medway.

The warnings were ignored, the result now evident.

This blog suspected that we would see a double-dip in growth. It did not predict, to its chagrine, a plunge into a contraction in the fortunes of UK PLC by 0.5%.

These are dire GDP numbers, despite local Conservative desperation to state otherwise, which highlight, proof positive, that the government’s reckless gamble with the economy risks plummeting the UK back in to recession.

The economy contracted by 0.5% in the fourth quarter of 2010, compared to growth of 1.1% in the second quarter and 0.7% in the third quarter.

The government’s claims that the numbers are just because of snow is not only complacent but a factual inaccuracy. This blog has been saying for months that the Tories have failed to set a pro-growth agenda and instead focused on blaming all the cuts on Labour. A strategy which creates pessimism in the market at the exact time we need people to start spending.

For months this blog has argued that the government need a Plan B, that cuts while the recovery is so weak are reckless and that the VAT increase will make matters worse. It has clearly stated the position, shared by the Medway Labour Group, that over-aggressive cuts over an electoral timescale is not sensible.

Meanwhile local Conservatives continue to put their heads in the sand. The recession was not caused by government; it was caused by a lack of global regulatory governance and irresponsible bankers. Until Tories can accept the true facts they will not come to the right conclusions

The reality of todays fall in GDP is not all because of the snow. Today’s numbers reveal that even before the VAT increase and before the full extent of the cuts are felt the economy is shrinking again. All the efforts by the previous Labour government to help keep people in work, families in their homes and businesses in business are being undone by what Osborne and the coalition are doing.

The GDP numbers are not even the only data for concern. Last week, unemployment figures showed that 49,000 more people were claiming benefits in the three months to November compared with the three months before that. Mortgage lending is at a 20-year low and bank lending to small businesses fell in the past three months.

The Tory position of cuts and tax hikes allowing the private sector to flourish is too soon. The private sector has not recovered at a pace to mitigate the huge cuts in the public sector – the reality is that public sector cuts, before the economy is out of the danger zone will prolong not accelerate the recovery. Tories were blind to this before today, surely not now.

And with inflation now at 3.7% on the consumer prices index and 4.8% on the retail prices index, Osborne’s optimism that the Bank of England can keep the show on the road is looking less and less plausible. The competing pressures the Monetary Policy Committee face – of managing relatively high and rising inflation, with stalling demand – is becoming more and more stark.

There are other warning signs as well. Richard Lambert, former head of the CBI, said yesterday that:

“It is not enough just to slam on the spending brakes. Measures that cut spending but killed demand would actually make matters worse.”

He went on to criticise the government for failing to articulate a “vision of what the UK economy might become under its stewardship”.

Even the government’s own creation, the Office for Budget Responsibility, is sending out warnings – telling Osborne that 490,000 jobs will be lost in the public sector as a result of government cuts. PriceWaterhouseCoopers go further, showing that another 500,000 jobs will disappear in the private sector as a result of the government’s austerity programme.

George Osborne and his Lib Dem cheerleaders are the only ones who seem to think the austerity strategy is working – with an attitude that doesn’t match the reality.

Over the next fortnight data for growth in the US and Europe will be published. If, as expected, their economies are continuing to grow we will have all the evidence we need to know that this reckless gamble with jobs and growth is not working. It will also prove that snow was not the reason as many countries had similar winters.

The Tories are now at grave risk of loosing economic credibility. Another quarter of contraction will lead to recession and that will be the end of the coalitions credibility.