It may be too late to prevent recession

George Osborne's policies have failed. He talked down the economy -- and now it is sinking.

The data releases this week have all been bad for the coalition. It started in the United States, which matters because generally what happens there is repeated in the UK a few months later.

First, the Conference Board published data on consumer confidence that showed a much greater collapse than had been expected, especially in relation to the respondents' expectations for the future.

Second, the Case-Shiller house price index -- the leading measure of US home prices -- shows that the US National Home Price Index declined by 4.2 per cent in the first quarter of 2011, after having fallen 3.6 per cent in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter's data and posted an annual decline of 5.1 per cent versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels. As of March 2011, 19 of the 20 MSAs covered the index were down compared to March 2010.

Third, ahead of the official release of employment data on Friday, an ADP Employment Services report suggests that private-sector payroll growth slowed sharply in May, falling to the lowest level in eight months. This prompted some economists to lower their forecasts for job growth in Friday's data release. It looks as if the US is slowing.

In Europe, the final Markit eurozone manufacturing PMI fell sharply to a seven-month low of 54.6 in May, down from 58.0 in April and below the flash estimate of 54.8. The fall in the index was the largest since November 2008, as manufacturers reported slower rates of increase in output, new orders, employment and inventory accumulation. China is also slowing. Economic output in Australia shrank by 1.2 per cent in the three months to March -- the worst quarterly slide since 1991 -- the national accounts of the Australian Bureau of Statistics showed yesterday.

The data releases for the UK today were truly awful. They follow from the public finance data that shows that, far from paying off the debt, Osborne is increasing it. Plus such growth as there wasn't -­ GDP grew by zero over the past six months -- was driven by government spending. Then, today, the PMI for manufacturing in May was worse than the market expected.

According to Capital Economics, on past form, that leaves the balance consistent with quarterly falls in manufacturing output of around 1 per cent. Some of this fall, it argues, is likely to have been driven by the temporary disruption to supply chains caused by the Japanese earthquake. But Capital Economics points out that the new orders balance also fell from 50.8 to 48.3, which, it argues, suggests that "beneath the monthly volatility, a sharp underlying slowdown in demand is taking place".

There were also a number of statistical releases from the Bank of England, which added to the bleak picture. It appears that banks are simply not lending enough to get the economy moving. This suggests the poorly named Merlin project -- which should be renamed the Mickey Mouse project -- has not worked any magic. First, the money-supply growth was weak. Second, the stock of lending to UK businesses overall contracted in the three months to February, as did the stock of lending to small and medium-sized enterprises. Third, the number of loans approved for house purchases fell by 4 per cent to a four-month low of 45,166 in April ­- the lowest figure for April since records began in 1992.

This inept Chancellor has talked the economy down by falsely claiming it was bankrupt when it wasn't, which has decimated animal spirits among both businesses and consumers. He has also tried to blame a once-in-a-hundred-year global financial crisis on the previous government, which was clearly also untrue and hyperbolic. Osborne has implemented toothless regulation over the banks and has demonstrably failed to get them to lend. He also has no interest in controlling bankers' bonuses, despite his absurd claims to the contrary when he was shadow chancellor. And all of this before the public spending cuts hit: currently it is the public sector that is the driver for growth but that is all about to change. The public finances are worsening, not improving.

The government's economic policy is in total disarray and the economy is sinking. Osborne has been hoisted by his own petard; his numerous false claims were inevitably going to catch up with him and now they have. The coalition's austerity programme was never based on sound economics and was simply a political move to shrink the state. Interestingly, the claims that the economics profession supported his actions have turned out to be false. In my NS column in the issue out tomorrow, I make clear that one of the initial signatories to the letter to the Times that Osborne touted as supporting him ­- the 2010 Nobel Prize winner in economics, Chris Pissarides -­ has now, embarrassingly for Osborne, turned against him and now opposes the ill-conceived and wreckless austerity programme of cuts and tax increases.

It is hard to find any economists outside the City of London that do support the government's strategy, other than a few of the usual right-wing hangers-on.

It is time for Osborne to explain to the British people why his economic policies have failed and what he intends to do about it. My fear is that Slasher has inflicted so much damage on the British economy that it is too late to prevent us slipping back into recession.

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

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Carwyn Jones is preparing for a fight with the UK government

From Labour's soft-nationalist wing, Jones has thought carefully about constitutional politics. 

This week's 20th anniversary of the 1997 Yes vote on devolution in Wales was a rather low-key affair. But then while there are plenty of countries around the world that celebrate an Independence Day, few nations or regions around the world would make much fuss about "Partial Autonomy Day".

The most important single event of the day was, almost certainly, the address by First Minister Carwyn Jones at the Institute of Welsh Affairs’ 20th anniversary conference. The sometimes diffident-seeming Welsh Labour leader has rarely been on stronger form. Much of his speech was predictable: there were his own recollections of the 1997 referendum; some generous reflections on the legacy of his now-departed predecessor, Rhodri Morgan; and a lengthy list of identified achievement of devolved government in Wales. But two other features stood out.

One, which might have struck any observers from outside Wales was the strongly Welsh nationalistic tone of the speech. In truth this has long been typical for Jones, and was a very prominent element of the successful Labour general election campaign in Wales. A fluent Welsh-speaker and long a part of the soft-nationalist wing of Welsh Labour, the First Minister briefly considered what would have been the consequences of the achingly-close 1997 ballot having gone the other way. Wales, we were told, would no longer have had the right to be considered a nation – it might even (gasp!) have lost the right to have its own national football team. But this theme of the speech was also linked to devolution: why should Wales not have parity of treatment on devolved matters with Scotland?

The most striking feature of the speech, however, was the confidence and combativeness with which the First Minister set about attacking the UK government on constitutional matters. This territory has often appeared to be the area which most animates Jones, and on which he is most comfortable. He has clearly thought a great deal about how to protect and develop the constitutional status of devolved Wales. The First Minister was clearly deeply unimpressed by the UK government’s handling of Brexit as a whole, and he linked Brexit to broader problems with the UK government’s approach to the constitution. Brexit was declared in the speech to be the "biggest threat to devolution since its inception" – and the audience were left in no doubt as to where the blame for that lay. Jones was also clearly very comfortable defending the joint stance he has taken with the Scottish National Party First Minister of Scotland, in opposing the EU Withdrawal Bill and much of the UK government’s approach to Brexit negotiations. This high level Labour-SNP cooperation – extraordinary, given the otherwise utterly toxic relations between the two parties – was argued to be the necessary consequence of the UK government’s approach, and the threat of a power-grab by Westminster of powers that are currently devolved. 

Finally, the First Minister had one new card up his sleeve. He was able to announce a Commission on Justice in Wales, to be chaired by a figure of impeccable authority: the soon-to-retire Lord Chief Justice of England and Wales, John Thomas. The clear intention of the Welsh government seems to be to use this commission to advance their agenda of a distinct Welsh legal jurisdiction. This is another matter on which there appears to be little current common ground with the UK government.

Carwyn Jones emerged from the general election as a greatly strengthened figure: having led the Labour campaign in Wales when it appeared that the party might be in difficulty, he deservedly accrued much political capital from Welsh Labour’s success in June. The First Minister has been thinking imaginatively about the UK constitution for some years. But for a long time he failed even to carry much of the Welsh Labour party with him. However, he succeeded in having many of his ideas incorporated into the Labour UK manifesto for June’s election; he is no longer a voice crying out in the wilderness. On the anniversary of devolution, Jones said little that was wholly new. But the combination of everything that he said, and the tone and confidence with which he said it, was striking. This was not the speech of a man looking to back away from a confrontation with the UK government. Wales seems up for a fight.

Roger Scully is Professor of Political Science in the Wales Governance Centre at Cardiff University.