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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A To-Do List for the next Labour leader

Whoever wins in September faces an uphill task. IpsosMori's Gideon Skinner lays it out. 

While all the media attention is focused on the prospect of a victory for Jeremy Corbyn on September 12, it shouldn’t be forgotten that whoever takes up the leadership mantle, there’s an uphill battle ahead to turn around the party’s fortunes in time for 2020.

Ipsos MORI recently spoke to a panel of former Labour voters in Nuneaton and Croydon Central for BBC Newsnight. These are both the kind of seats that the party really must take back if it is to stand a chance of electoral success in 2020 – and so we asked them what they want from the next Labour leader. 

Here’s the big themes that came during our discussions with Labour’s lost voters:

1.Style matters

Ed Miliband may have tried to reframe the debate around his personal leadership qualities by explicitly admitting that "If you want the politician from central casting, it's not me, it's the other guy. If you want a politician who thinks that a good photo is the most important thing, then don't vote for me." But style and personal image still matter[1], and to win back former voters the next leader needs to recognise that coming across well is an important part of the job. That Ed Miliband couldn’t connect with people was highlighted as a real problem; for most people, the television is the only way in which they have contact with politicians so their media appearances need to count. 

2.But so does talking about the issues that bother people

Immigration reached a record high in our regular Issues Index this month, with half (50 per cent) of the public listing it as one of the most important issues facing the country.  Concern about immigration is real (especially in many marginals - UKIP increased its share of the vote by 14.4 per cent in Nuneaton and 7.1 per cent in Croydon), and is seen as being at the root of many social issues affecting people. People want their concern to be acknowledged (and more than just slogans on mugs) and an action plan set out.

“They need to focus on the things that matter and immigration is a big one with a knock-on effect on housing, education, the NHS….it’s a real big one for them to tackle”

3.Big ideas and ideological commitments mean little if they don’t resonate

You want to renationalise the railways? Scrap Trident? Introduce universal free childcare? Fine – but these aren’t necessarily the policies that are going to win back Labour’s lost voters. After years of being told that there is no money left in the country’s coffers, any big policy statement is met with two immediate questions; 1) how much is this going to cost and 2) where is the money going to come from? Without answering both of these points, any policy is quickly discredited.   While participants valued backbenchers with strong principles and ideologies who can hold the executive to account, they judge potential Prime Ministers differently. 

“If Labour got back in they would just spend, spend, spend again and we would be paying that money back for years- and we already are but it would be far worse under a Labour government”

What’s more, these aren’t the issues that matter to people. Over and above immigration they want to know what the next Labour leader plans to do to help people like them – how they will be helped onto the housing ladder, how they can be sure their children will be sent to a good school in their local catchment area, and how the NHS will be reformed so they can get a GPs appointment when it suits them.

“We want to hear them give a sermon on housing for our young people, the NHS, education, terrorism – stuff about nuclear isn’t in the here and now, it isn’t on our doorstep”.

4.But being passionate about what you believe in gets you a long way

Despite that, just as much as what is being said, it matters how it is being said. Passion and conviction is taken as shorthand to mean politicians will do what they say and can be trusted. Tony Blair was highlighted as a good example here; participants stated that even though you might not like what he did, he spoke from the heart and followed through on his beliefs (Nigel Farage is another who gets this “everyman” image right). Furthermore, conviction can only come if politicians have empathy with the people they’re representing and understand the trials they face – something not thought to be possible for those who have led a life of privilege. As one participant said: “If they lived our lives, normal job, normal schooling, you could see it….they’re not real though. If they lived for two or three months on the money we had to live on they might understand”.

“A leader should be someone that is representative of more of the people of the country, not just the top 2 per cent of the country – just ordinary”

5.So does saying sorry

While participants understood that the financial crisis of 2008 was about more than just Labour spending, they still feel that their policies had a part to play in the resultant austerity that followed. Indeed, they’re considered culpable enough to warrant giving an apology some seven years later – particularly those contenders for the leadership who were key figures in the last Labour government. Because of this, participants felt more disposed to those candidates who acknowledged that Labour had made financial mistakes and learnt the lessons – particularly as they assumed that deficit reduction would have to continue and were keen to hear how the next Labour leader would go about this.

6.Identify a point of difference

With all parties eager to speak up for hardworking people, what sets the Labour party apart? Participants weren’t able to think of much – and without this difference, there’s nothing to for them to rally behind and, what’s more, it encouraged a sense that all politicians are the same. With this in mind, few felt inclined to engage with what is on offer, and what the actual choice is.

7.And unite the party behind you

Regardless of who the next Labour leader is, one thing is for sure; without a united party behind them, they simply won’t be seen as a credible leader. Participants expressed distaste for the ‘constant bickering’ that was thought to characterise UK politics – they certainly did not want to see party in-fighting on top of this. As one participant put it: “as a party, they need to be united…if you’re party aren’t behind you, why should we?”

********

An impossible wish-list that no one could ever meet? Well, while the next Labour leader will certainly face an uphill struggle to win back voters who have lost confidence, the Conservative government was not talked about in glowing terms either – rather, they were routinely described as being ‘the best of a bad bunch’.

“We need to be given a credible alternative to be able to vote for Labour, someone with clear direct policies that are believable and that we understand….clear messages that enable us to vote for them”.

Nevertheless, while there still may not be lots of affection for the Conservatives, the onus will be on the next Labour leader to win back lost voters, whoever he or she is.  As participants bluntly acknowledged “they’ve lost our confidence” – something they traced back to 2008 and the financial crisis. And, in the absence of a credible Labour leader who can revitalise the party and engage with the voters on the issues of importance to them, then sticking with what they know will be the preferred option.  As one participant said:

“I’ve got a mortgage and two young kids and I feel secure right now…if Labour come in would they rock the boat?”

  • Ipsos MORI conducted two discussion groups on behalf of BBC Newsnight. One was conducted in Nuneaton on Thursday 20th August and the other in Croydon on Wednesday 26th August. Participants were all former Labour voters, who had voted for a different party (either the Conservatives, UKIP or the Liberal Democrats) in 2015. All were aged between 30 – 50 and were social grade C1C2.  Each discussion lasted around 90 minutes and was structured by a discussion guide. The full focus group will be broadcast on Newsnight tonight on BBC Two at 10:30pm.
 

[1] See for example Milazzo, C. and Mattes, K. Pretty faces, marginal races. Predicting Election Outcomes using Trait Assessments of British Parliamentary Candidate. This paper is also covered in Cowley, P. and Ford, R. (2014) Sex, Lies and the Ballot box – 50 things you need to know about British General Elections.

Gideon Skinner is Head of Political Research at IpsosMori. He tweets as @GideonSkinner.