The IMF has no credibility in forecasting the UK economy

George Osborne has, in effect, already resorted to Plan B, because his policies are not working.

Yesterday, the IMF cut its 2011 growth forecast for the UK to 1.5 per cent but said that the government's economic policy was going along swimmingly. The Chancellor seemed to be really pleased about this endorsement. But Slasher didn't seem to notice that the IMF argued that the risks to their forecasts were "significant".

Sadly, the UK economy did not grow at all over the past six months. Consumer confidence has collapsed; business confidence is weakening; employment growth has slowed sharply; house prices are falling and the number of mortgage approvals is falling; business lending is down and there remain real risks of deflation, which I guess John Lipsky, acting head of the IMF, hasn't spotted. Over the weekend, 50 economists did spot the problem and wrote to the Observer about it. The Cabinet Office's ex-chief economist Jonathan Portes and Vicky Price, ex-head of the Government Economic Service, warned that the economy was slowing, as did Tim Besley and John Muellbauer, who had previously signed a letter in the Times supporting the government's now failing strategy. The new economics Nobel laureate, Chris Pissarides, who was also a signatory to the Times letter, also told me in an exclusive interview published in the New Statesman this week that his preferred action now is for a postponement of fiscal contraction. Growth is nowhere to be seen and the government has no plan to fix this.

The Chancellor's claim that his strategy was always flexible because of the use of automatic stabilisers amounted to an announcement of Plan B. As growth slows and unemployment rises, as it surely will, then the payments to unemployment benefits in particular start to rise. This is plainly an announcement that the speed at which the deficit is paid off will inevitably have to be slower than he had previously announced, because his policies are not working -- as I have frequently warned.

Plus, if, or more likely when, the economy starts declining further, the government would have to cut taxes and do more quantitative easing. Hence Vince Cable, Osborne and now the IMF have endorsed Adam Posen's and my long-held views: that there is a possiblity of a slow, Japanese-type recovery, hence the need for another round of asset purchases: ie Plan C.

I was particularly interested to look back to 6 August 2008, when the IMF also lowered its growth forecast for the UK economy.

The IMF predicted that the UK would grow by 1.4 per cent in 2008 and 1.1 per cent in 2009, down from the 1.8 per cent for 2008 and 1.7 per cent for 2009 that it predicted in of 2008. It said inflation at 3.8 per cent was higher than expected and inflation expectations were rising, even as economic activity was slowing. That, the IMF said, meant the Bank of England had little room to cut rates. It didn't exactly turn out that way. In August 2008, the IMF didn't even spot that the UK economy had entered recession in April that year. The IMF has no credibility in forecasting the UK economy.

Osborne has already turned, as the economy is slowing even before the public spending cuts hit. The government's economic strategy is in disarray, no matter which of Osborne's pals he gets to say otherwise.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Jeremy Corbyn's speech on terrorism will do him more good than harm

The Labour leader's criticism of police cuts and western foreign policy will resonate with voters.

The election campaign, if there was any doubt, has resumed. In his speech responding to the Manchester attack, Jeremy Corbyn did not limit himself to expressions of sympathy and solidarity. He squarely targeted Theresa May on her home turf: policing and security.

The Conservatives' repeated warning is that Corbyn is a "threat" to his country. But the Labour leader countered that only he could keep it "safe". Austerity, he declared, "has to stop at the A&E ward and at the police station door. We cannot be protected and cared for on the cheap." May, having been warned by the Police Federation while home secretary of the danger of cuts, is undoubtedly vulnerable on this front. Under Labour, Corbyn vowed, "there will be more police on the streets" (despite Diane Abbott's erroneous arithmetic), while the security services would receive whatever resources they need.

Corbyn swiftly progressed to foreign policy, the great passion of his political life. Though it is facile to reduce terrorism to a "blowback" against western interventionism (as if jihadists were Pavlovian dogs, rather than moral agents), it is blinkered to dismiss any connection. As Corbyn noted: "Many experts, including professionals in our intelligence and security services have pointed to the connections between wars our government has supported or fought in other countries, such as Libya, and terrorism here at home" (the Tory-led Foreign Affairs Select Committee is among those who agree).That the former Stop the War chair has long taken this view absolves him of the charge of crude political opportunism.

Corbyn was also more careful than his pre-briefed remarks suggested to caveat his criticisms. He emphasised: "Those causes certainly cannot be reduced to foreign policy decisions alone. Over the past fifteen years or so, a sub-culture of often suicidal violence has developed amongst a tiny minority of, mainly young, men, falsely drawing authority from Islamic beliefs and often nurtured in a prison system in urgent need of resources and reform.

"And no rationale based on the actions of any government can remotely excuse, or even adequately explain, outrages like this week’s massacre."

But he maintained his central charge: western intervention has made the world more dangerous, not less. "We must be brave enough to admit the war on terror is simply not working," he said. "We need a smarter way to reduce the threat from countries that nurture terrorists and generate terrorism."

Though Corbyn's arguments have appalled Conservatives (and some in Labour), they are ones that will likely find favour among the public. Polls have consistently shown that most voters oppose western adventurism and believe it has endangered the UK. Corbyn's words will resonate among both the anti-interventionist left and the isolationist right (this is, after all, a country which has just voted to retreat from even its closest neighbours).

The speech, given at 1 Great George Street (in the room where Ed Miliband gave his resignation address), was marred by Corbyn's refusal to take questions. But it was unarguably well-delivered. "Let’s have our arguments without impugning anyone’s patriotism and without diluting the unity with which we stand against terror," he warned in a pre-emptive strike against the Conservatives.

Corbyn's decision to give an overtly political speech four days after the Manchester attack is being widely described as a "gamble" or even a profound error. But the election will now rightly focus more closely on the issue of security - nothing should be beyond democratic debate.

Many of Corbyn's life-long stances, such as unilateral disarmament, do not find favour with the electorate. But there was little in his speech today that the average voter would contest. The Conservatives will hope to turn the heightened security debate to their advantage, ruthlessly quoting Corbyn against himself. But on this front, as on others, the Labour leader is proving a tougher opponent than they anticipated.

George Eaton is political editor of the New Statesman.

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