The bad economic news keeps flooding in

UK manufacturing output hits a 26-month low as growth forecasts are cut again.

The bad economic news keeps flooding in on a daily basis -- but there's still no response from George Osborne.

Manufacturing had been booming -- not least because of exports driven by the significant depreciation in the pound -- but that appears to be heading into reverse. Today's PMI for UK manufacturing fell to a 26-month low. Production fell for the first time since May 2009, as new order inflows declined at the most marked pace in almost two and a half years. The trend in new export business was also substantially weaker than just one month ago. Manufacturers linked the reduction to weak domestic demand, rising global economic uncertainty and lower levels of new export business.

Rob Dobson, senior economist at Markit, commenting on the data, argued: "The second half of 2011 has, so far, seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear . . . The sudden and substantial drop in new export orders is particularly worrisome, with UK manufacturers hit by rising global economic uncertainty, just as austerity measures are ramping up at home. As consumer and business confidence are slumping both at home and abroad, it is hard to see where any near-term improvement in demand will spring from."

Then, today, the British Chambers of Commerce cuts its growth forecast. They are now expecting GDP growth of 1.1 per cent in 2011 (down from 1.3 per cent) and 2.1 per cent in 2012 (down from 2.2 per cent), rising to 2.5 per cent in 2013. This is much less than the Office for Budget Responsibility, for example, which is forecasting 1.7 per cent in 2011 and 2.5 per cent in 2012.

This lowering of the growth forecast is consistent with evidence from Grant Thornton's UK Business Confidence Monitor for Q3 2011, conducted between 3 May and 29 July 2011, which showed that business confidence had fallen sharply. The confidence index stands at 8.1, down from 13.7 in Q2 2011 to its lowest level since Q3 2009.

The Confidence Index has been on a downward path since a post-recession bounce-back that started in late 2009 and peaked in the first half of 2010, just as this coalition government took office. Notably, the survey suggested that business confidence in the manufacturing and engineering sectors was "relatively downbeat" and continued to weaken.

And then there were some really daft comments from Andrew Sentance in an op-ed piece in the Wall Street Journal, in which he argued against further stimulus.

"The global economic recovery has been under way for about two years . . . Monetary policy needs to shift away from the emergency settings that were put in place to halt sharp falls in demand in late 2008 and 2009. The deflationary risks that were then a worry have now receded. Indeed, in some countries -- such as the UK -- persistent inflation is now the bigger worry . . . further stimulus of the demand side would be a move in the wrong direction. It may appear to offer the prospect of short-term respite from economic difficulties. But it will not help us secure the conditions for sustainable growth and lasting economic recovery." Yes it will.

Sentance couldn't be more wrong -- as data from the past few days has made clear, the global economy is slowing fast. It is now apparent that his votes for increasing interest rates at his last 12 meetings were completely misguided as growth plummets and unemployment rises. The UK now has a growth problem, rather than an inflation problem. Wrong on interest rates and wrong on austerity.

Ed Balls had it right today on the World at One: "If you adjust for the high oil prices [and] the fall in the exchange rate, underlying inflation in Britain today is very low indeed. That is reflected in long-term interest rates being very low. Why is that? Because our economy isn't growing . . . Manufacturing output is down and, all around the world in America, in Europe and in Britain, the challenge for central bankers is to do what they can with monetary policy to support growth and get things moving again. The trouble is, in the very unusual global situation we're in, it is hard for interest rates to do that job. That is why there is a challenge to fiscal policymakers to act, as well."

Now is the time for the coalition to act to stimulate growth.

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

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The problems with ending encryption to fight terrorism

Forcing tech firms to create a "backdoor" to access messages would be a gift to cyber-hackers.

The UK has endured its worst terrorist atrocity since 7 July 2005 and the threat level has been raised to "critical" for the first time in a decade. Though election campaigning has been suspended, the debate over potential new powers has already begun.

Today's Sun reports that the Conservatives will seek to force technology companies to hand over encrypted messages to the police and security services. The new Technical Capability Notices were proposed by Amber Rudd following the Westminster terrorist attack and a month-long consultation closed last week. A Tory minister told the Sun: "We will do this as soon as we can after the election, as long as we get back in. The level of threat clearly proves there is no more time to waste now. The social media companies have been laughing in our faces for too long."

Put that way, the plan sounds reasonable (orders would be approved by the home secretary and a senior judge). But there are irrefutable problems. Encryption means tech firms such as WhatsApp and Apple can't simply "hand over" suspect messages - they can't access them at all. The technology is designed precisely so that conversations are genuinely private (unless a suspect's device is obtained or hacked into). Were companies to create an encryption "backdoor", as the government proposes, they would also create new opportunities for criminals and cyberhackers (as in the case of the recent NHS attack).

Ian Levy, the technical director of the National Cyber Security, told the New Statesman's Will Dunn earlier this year: "Nobody in this organisation or our parent organisation will ever ask for a 'back door' in a large-scale encryption system, because it's dumb."

But there is a more profound problem: once created, a technology cannot be uninvented. Should large tech firms end encryption, terrorists will merely turn to other, lesser-known platforms. The only means of barring UK citizens from using the service would be a Chinese-style "great firewall", cutting Britain off from the rest of the internet. In 2015, before entering the cabinet, Brexit Secretary David Davis warned of ending encryption: "Such a move would have had devastating consequences for all financial transactions and online commerce, not to mention the security of all personal data. Its consequences for the City do not bear thinking about."

Labour's manifesto pledged to "provide our security agencies with the resources and the powers they need to protect our country and keep us all safe." But added: "We will also ensure that such powers do not weaken our individual rights or civil liberties". The Liberal Democrats have vowed to "oppose Conservative attempts to undermine encryption."

But with a large Conservative majority inevitable, according to polls, ministers will be confident of winning parliamentary support for the plan. Only a rebellion led by Davis-esque liberals is likely to stop them.

George Eaton is political editor of the New Statesman.

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