“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.

George Eaton is political editor of the New Statesman.

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The big problem for the NHS? Local government cuts

Even a U-Turn on planned cuts to the service itself will still leave the NHS under heavy pressure. 

38Degrees has uncovered a series of grisly plans for the NHS over the coming years. Among the highlights: severe cuts to frontline services at the Midland Metropolitan Hospital, including but limited to the closure of its Accident and Emergency department. Elsewhere, one of three hospitals in Leicester, Leicestershire and Rutland are to be shuttered, while there will be cuts to acute services in Suffolk and North East Essex.

These cuts come despite an additional £8bn annual cash injection into the NHS, characterised as the bare minimum needed by Simon Stevens, the head of NHS England.

The cuts are outlined in draft sustainability and transformation plans (STP) that will be approved in October before kicking off a period of wider consultation.

The problem for the NHS is twofold: although its funding remains ringfenced, healthcare inflation means that in reality, the health service requires above-inflation increases to stand still. But the second, bigger problem aren’t cuts to the NHS but to the rest of government spending, particularly local government cuts.

That has seen more pressure on hospital beds as outpatients who require further non-emergency care have nowhere to go, increasing lifestyle problems as cash-strapped councils either close or increase prices at subsidised local authority gyms, build on green space to make the best out of Britain’s booming property market, and cut other corners to manage the growing backlog of devolved cuts.

All of which means even a bigger supply of cash for the NHS than the £8bn promised at the last election – even the bonanza pledged by Vote Leave in the referendum, in fact – will still find itself disappearing down the cracks left by cuts elsewhere. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.