Blow for Osborne as economy shrinks by 0.5 per cent

Fears of a double-dip recession return after economy unexpectedly contracts.

Most forecasters predicted economic growth of 0.4 per cent in the fourth quarter of 2010 but, as is often the case, the consensus was badly wrong. The economy actually shrank by 0.5 per cent, according to the first estimate by the Office for National Statistics.

George Osborne has inevitably cited the poor weather in the government's defence but even without the snow, the ONS says, growth would have been flat at 0 per cent. After strong growth of 0.7 per cent in the third quarter and 1.1 per cent in the second quarter (largely thanks to the last government's stimulus package and the Bank of England's ultra-loose monetary policy), the economy is running on empty again. Overall growth for the year was 1.4 per cent, significantly below the Office for Budget Responsibility's prediction of 1.8 per cent.

With the effects of the VAT rise yet to be felt and the spending cuts still to come in April, there is now a real risk of a double-dip recession – two successive quarters of negative growth. It's a good day for Labour to have Ed Balls, who has frequently warned of a double dip, leading the attack. But he should be careful this morning to strike a tone of concern, rather than one of vindication.

Meanwhile, as the graph I've put together shows, the spectre of stagflation – rising prices combined with falling growth – has returned.

GDP

The biggest difficulty for the government is that Osborne has few monetary weapons at his disposal. Interest rates are already at record lows and the exchange rate has fallen sharply since the crisis began in 2008. By contrast, as Robert Skidelsky noted in an essay last year for the NS, after the savage cuts of the 1981 Budget, Geoffrey Howe was able to loosen the money supply by cutting interest rates by 2 per cent.

Insofar as the government has a plan B, it is for further quantitative easing (QE). But with the cost of unsecured loans significantly higher than before the crisis, it is far from certain that another monetary injection will have the desired effect. Osborne is also under growing pressure from the inflation hawks to raise interest rates and avoid another round of QE.

For now, the government is sticking to its Thatcher-like insistence that there is no alternative. But if the next set of growth figures (published in April) show little improvement, Osborne will begin to come under significant pressure to postpone the cuts. The Chancellor's decision to declare hubristically last November that "the plan is working" now looks like a very poor judgement indeed.

George Eaton is political editor of the New Statesman.

DebateTech
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Politicians: it's no longer OK to know nothing about technology

It’s bad enough to joke about not being "techy"; it's worse to write a piece of legislation from a position of ignorance. 

Earlier this week, facing down a 600-strong battalion of London’s tech sector at a mayoral hustings in Stratford, Zac Goldsmith opened his five minute pitch with his characteristic charm. “I’m not very techy!” he exclaimed. “I understand coding about as well as Swahili!”

Pointless jibe at a foreign language aside, this was an ill-chosen way to begin his address - especially considering that the rest of his speech showed he was reasonably well-briefed on the problems facing the sector, and the solutions (including improving broadband speeds and devolving skills budgets) which could help.

But the offhand reference to his own ignorance, and the implication that it would be seen as attractive by this particular audience, implies that Goldsmith, and other politicians like him, haven’t moved on since the 90s. The comment seemed designed to say: “Oh, I don't know about that - I'll leave it to the geeks like you!"

This is bad enough from a mayoral hopeful.  But on the same day, the Intelligence and Security Committee of Parliament filed its report on the Draft Investigatory Powers Bill, the legislation drafted by the Home Office which will define how and how far the government and secret services can pry into our digital communications. Throughout, there's the sense that the ISC doesn't think the MPs behind the bill had a firm grasp on the issues at hand. Words like "inconsistent" and "lacking in clarity" pop up again and again. In one section, the authors note:

"While the issues under consideration are undoubtedly complex, we are nevertheless concerned that thus far the Government has missed the opportunity to provide the clarity and assurance which is badly needed."

The report joins criticism from other directions, including those raised by Internet Service Providers last year, that the bill's writers didn't appear to know much about digital communications at all, much less the issues surrounding encryption of personal messages.

One good example: the bill calls for the collection of "internet connection records", the digital equivalent of phone call records, which show the domains visited by internet users but not their content. But it turns out these records don't exist in this form: the bill actually invented both the phrase and the concept. As one provider commented at the time, anyone in favour of their collection "do not understand how the Internet works". 

Politicians have a long and colourful history of taking on topics - even ministerial posts - in fields they know little to nothing about. This, in itself, is a problem. But politicians themselves are often the people extolling importance of technology, especially to the British economy - which makes their own lack of knowledge particularly grating. No politician would feel comfortable admitting a lack of knowledge, on, say, economics. I can’t imagine Goldsmith guffawing "Oh, the deficit?  That's all Greek to me!"  over dinner with Cameron. 

The mayoral candidates on stage at the DebateTech hustings this week were eager to agree that tech is London’s fastest growing industry, but could do little more than bleat the words “tech hub” with fear in their eyes that someone might ask them what exactly that meant. (A notable exception was Green candidate Sian Berry, who has actually worked for a tech start-up.) It was telling that all were particularly keen on improving internet speeds -  probably because this is something they do have day-to-day engagement with. Just don't ask them how to go about doing it.

The existence of organisations like Tech London Advocates, the industry group which co-organised the hustings, is important, and can go some way towards educating the future mayor on the issues the industry faces. But the technology and information sectors have been responsible for 30 per cent of job growth in the capital since 2009 - we can't afford to have a mayor who blanches at the mention of code. 

If we’re to believe the politicians themselves, with all their talk of coding camps and skills incubators and teaching the elderly to email, we need a political sphere where boasting that you're not "techy" isn’t cool or funny - it’s just kind of embarrassing. 

Barbara Speed is a technology and digital culture writer at the New Statesman and a staff writer at CityMetric.