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“Choppy recovery” or double dip?

There are too many warning signs for the coalition to dismiss fears of another downturn.

As expected, the Bank of England has cut its growth forecast for next year from 3.4 per cent to a more realistic 2.5 per cent. The Bank didn't comment on the increasing possibility of a double-dip recession, but its quarterly inflation report this morning makes it clear that the remarkable growth of the past quarter (1.1 per cent) won't be sustained.

Here's the key passage, on what Mervyn King said would be a "choppy recovery":

GDP growth is likely to slow in Q3. In part, that is because Q2 growth was erratically strong. But there are also signs that underlying growth may be weakening. Business confidence has fallen across a range of surveys and the CIPS/Markit business activity indices fell back across all sectors in July.

But, if we're to believe the Telegraph's Ben Brogan, George Osborne is relaxed about the state of the economy. Brogan writes:

The prospect of a double dip -- specifically a return to recession -- is dismissed as unlikely. The Chancellor, who returns next week to take the reins while the Prime Minister is on holiday, sees signs of recovery building in the UK and in Europe. He reckons attempts to create a new narrative of an economy once again on the slide is a operation run by the left and its chums and driven by the likes of Ed Balls (the Tories pray that whichever of the Milibands ends up as leader will make him shadow chancellor).

But lower consumer spending, falling house prices and weaker-than-expected recovery in the US are all good reasons for him to avoid being so sanguine.

This morning's employment figures are encouraging, but the real test will come once the VAT rise and those 25 per cent cuts kick in. Is the private sector strong enough to sustain the recovery through the cuts? The reputation of the coalition depends on it.