Blow for Osborne as economy grows by just 0.2 per cent

The Chancellor hails "positive news" but he's missed his growth target again.

The news is out: the economy grew by just 0.2 per cent in the second quarter of this year. George Osborne will be relieved that it's not a negative figure, as some predicted, but it's still unambiguously bad news for the Chancellor. He needed growth of at least 0.8 per cent to stay on track to meet the OBR's growth forecast for this year (1.7 per cent - a figure that has been downgraded three times) and he's fallen well short. With this in mind, it is risible of him to claim that growth of 0.2 per cent is "positive news".

The Office for National Statistics said that "special factors", including the royal wedding, the Japanese tsunami and the unusually warm weather knocked around 0.5 per cent off GDP, which Osborne will cite in his defence. But the reality is that the economy has now grown by just 0.2 per cent over the last nine months, compared with growth of 2.1 per cent over the previous nine (see graph). As a result, the OBR will now be forced to cut its growth forecast for the fourth time since it was founded last May. Against this backdrop, it's hardly surprising, as the Telegraph reports, that "Downing Street aides [have] become increasingly impatient with a lack of growth".

A

We can expect Osborne and his allies to blame all manner of things, from the royal wedding (which we were originally told would "boost the economy"), to the eurozone crisis, to global instability. They're right - up to a point - but that doesn't explain why Britain has performed so much worse than many of its competitors, all of whom face the same "global challenges". Germany grew more in Q1 (1.5 per cent) than the UK will in all of this year.

The truth is that Osborne's policies have exacerbated, rather than diminished, Britain's economic problems. His mythical claim that Britain was "on the brink of bankruptcy" had a chilling effect on consumer confidence as families stopped spending in anticipation of the cuts and tax rises to come. His reckless decision to raise VAT to 20 per cent tightened the squeeze and automatically added 1.5 per cent to inflation.

So, to quote Lenin, what is to be done? There is, as I've argued before, a strong a case for a temporary cut in VAT. A VAT cut would boost consumer spending, lower inflation (thus reducing the risk of a premature rate rise), protect retail jobs and increase real wages. When Alistair Darling reduced the tax to 15 per cent during the financial crisis, consumers spent £9bn more than they otherwise would have done. A VAT cut today would be a similarly effective fiscal stimulus. But Osborne and David Cameron have already ruled out such a course of action.

That leaves Vince Cable's call for a "more imaginative" form of quantitative easing - the closest the government has to a plan B. But even another round of QE - the effectiveness of which is doubted by many economists - won't be enough to kick-start the economy. Osborne might have avoided a double dip but an anaemic recovery now looks inevitable.

George Eaton is political editor of the New Statesman.

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
Show Hide image

Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

0800 7318496