I have to say, I am beginning to feel a bit sorry for our dear Chancellor, who has backed himself into a corner. He was so confident when he came into power that he was right. All that sneering about the Labour government having failed and that he was going to put us on the path to nirvana.
Unfortunately, naive politics of that kind was always going to have to deal with the economic data. Osborne's economic strategy was always doomed principally as it had zero plans for growth; indeed, we are still awaiting an announcement of a policy for growth but now it is too late. Denying the need for a plan B was always a dangerous strategy.
In a speech at Bloomberg on 17th August 2010, Osborne argued as follows:
I'm optimistic that if we:
- stick to the course we have set ourselves on;
- hold firm to our plans;
- deal with our debts;
- start to rebalance our economy;
- and provide the stability Britain has been so lacking in recent years;
then we can navigate our way through to calmer waters.
The alternative -- to change course, put off dealing with our problems, be in denial about the scale of the deficit -- is the surest way to disaster. It would wreck the British economy.
And, ludicrously, he went on to argue: "We are all in this together."
Unfortunately, as I have been predicting would happen from the formation of the coalition, sticking to Osborne's economic plans is wrecking the British economy. No stability, rising unemployment, no calm waters and no rebalancing; and, most importantly, the consumer is running scared with negative real wage growth, rising prices and rising fear for the future.
The data today on the consumer side is horrid once again and, added to that fear, is likely to be a major downward pull on growth. This is another nail in the coffin for the OBR's growth forecast. In March 2011, the OBR forecast that consumption would make a positive contribution to growth in 2011 and even more so in subsequent years. That doesn't look likely.
Retail sales volumes fell, on a year ago in August, at the fastest pace for over a year, the CBI said today. Retailers were the most negative they have been about the general business situation since February 2009. The CBI's latest quarterly distributive trades survey found that 31 per cent of retailers saw the volume of sales rise in the two weeks to 16 August, while 46 per cent said they fell. The resulting rounded balance of -14 per cent was in line with expectations (-12 per cent) and the most negative since May 2010 (-18 per cent). A balance of -11 per cent of retailers said they felt more negative about the business situation over the next three months than they did three months ago; the most negative for 18 months. Retailers are scaling back investment plans over the next 12 months, with the balance of -11 per cent the most negative since February 2009 (-26 per cent). Not good.
The Nationwide Consumer Confidence Index for July fell by two points to 49 points and now stands at a near identical level to January 2011. Over half of consumers believe that it is currently a bad time to make a major purchase. Especially worrying was how the proportion of people who believe the economic situation will be better than today in six months time decreased by 3 percentage points. Robert Gardner, Nationwide's chief economist, said:
At 49 points, the main confidence index remains well below its long-run average reading of 79. With the economic recovery still facing strong headwinds it is unlikely that we will see any considerable improvement in confidence in the remainder of 2011. Indeed, it may be that we see a further deterioration in August, following riots in a number of UK cities and the sharp declines seen in stock markets around the world. Overall, conditions for the UK economy remain challenging, especially for consumers.
Plus, Martin Weale, one of the inflation hawks on the MPC, in a speech today in Doncaster explained that he changed his vote this month from an increase of 25 basis points -- that he had voted for in the previous seven meetings -- to one of no change. It was because of:
. . . the weaker economic outlook . . . the need for insurance is less than it was; by the time we produced our August forecast, the market path for interest rates consistent with keeping inflation close to its target was much less steeply sloped. Averaged over the next two to three years, the interest rate did not need to be as high. As a result, I did not see the case for an immediate increase in bank rate at our last meeting in August.
The economy is weakening and the chances are that the MPC will have to do more quantitative easing -- and soon.
We are not all in this together and Osborne's policies are wrecking the rapidly slowing UK economy. The time for sneering is over.