In the slow lane

New economic forecasts from the OECD show how bad austerity has been for growth.

The OECD's latest interim assessment of the outlook for the G7 economies, published on 29 March, suggests the UK economy is back in recession (usually defined by economists as two consecutive quarters of falling real GDP). A day earlier the Office for National Statistics published revised national accounts data showing real GDP contracted by 0.3 per cent in the final quarter of 2011. In its report, the OECD says it thinks this will be followed by a 0.1 per cent contraction in the first quarter of 2012.

The Office for Budget Responsibility (OBR) takes a more optimistic view in its latest forecast, published alongside the budget. It thinks the economy will grow by 0.3 per cent in the first quarter.

Differences in opinion between groups of economists over the outlook for the economy are not unknown, but it is a little surprising that two essentially consensual bodies like the OECD and the OBR have come up with such different forecasts for the current quarter, particularly when we are already at the end of March.

Typically, when trying to forecast very recent developments in the economy, economists look at surveys of business confidence. These have been shown to be the most reliable indicators of short-term fluctuations in activity (measures of consumer confidence are much less useful) and they support the OBR's forecast over the OECD's. Indeed, the OBR cite an improvement in survey evidence to justify their optimism that the economy will expanded in the first quarter.

Unfortunately, the OECD is less forthcoming about the reasons for its pessimism. It does, though, also forecast a recession in the three largest euro zone countries, taken together, and it may be that its economists believe this will cause a recession in the UK too.

What the OECD forecasts do show, however, is that even if the OBR are right about the outlook for the UK in coming quarters, the UK is experiencing a relatively slow economic recovery. Four years after the economy went into recession, real GDP will still be almost 4 per cent lower than at its peak. This makes the recovery slower than any economic recovery in the UK in the last century; it also means that the UK recovery is slower than those of all the other G7 economies bar Italy.

Why is this the case? In a recent speech, Adam Posen, one of the external members of the Bank of England's Monetary Policy Committee, analysed the gap between the recovery in the US and the recovery in the UK. He concluded that it was largely the result of differences in fiscal policy. The more aggressive fiscal tightening in the UK led to weaker consumer spending growth, which in turn helped explain why investment had failed to recover in the UK as fast as in the US.

When it came to power, the coalition argued that it had no choice but to increase taxes and make substantial cuts in public spending to eliminate the fiscal deficit over the course of four years (a timetable that has now been extended to six years). It also argued that this would not be bad for growth because private sector activity would expand to fill the gap left by the public sector.

The first proposition is still open to debate - and without a counterfactual we will never know for sure whether the government was right or not. But the second proposition has been shown to be false. Whether the OECD or the OBR are proved to be right about growth in the first quarter of 2012, by any measure the economic recovery in the UK has been hugely disappointing since the coalition took office.

Rather than stimulate activity in the private sector, austerity in the public sector has made it less willing to invest and recruit. Fiscal tightening has been bad for growth.

Tony Dolphin is the senior economist at ippr

Chancellor George Osborne. Photo: Getty Images

Tony Dolphin is chief economist at IPPR

Photo: Getty
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Unite stewards urge members to back Owen Smith

In a letter to Unite members, the officials have called for a vote for the longshot candidate.

29 Unite officials have broken ranks and thrown their weight behind Owen Smith’s longshot bid for the Labour leadership in an open letter to their members.

The officials serve as stewards, conveners and negotiators in Britain’s aerospace and shipbuilding industries, and are believed in part to be driven by Jeremy Corbyn’s longstanding opposition to the nuclear deterrent and defence spending more generally.

In the letter to Unite members, who are believed to have been signed up in large numbers to vote in the Labour leadership race, the stewards highlight Smith’s support for extra funding in the NHS and his vision for an industrial strategy.

Corbyn was endorsed by Unite, Labour's largest affliated union and the largest trades union in the country, following votes by Unite's ruling executive committee and policy conference. 

Although few expect the intervention to have a decisive role in the Labour leadership, regarded as a formality for Corbyn, the opposition of Unite workers in these industries may prove significant in Len McCluskey’s bid to be re-elected as general secretary of Unite.

 

The full letter is below:

Britain needs a Labour Government to defend jobs, industry and skills and to promote strong trade unions. As convenors and shop stewards in the manufacturing, defence, aerospace and energy sectors we believe that Owen Smith is the best candidate to lead the Labour Party in opposition and in government.

Owen has made clear his support for the industries we work in. He has spelt out his vision for an industrial strategy which supports great British businesses: investing in infrastructure, research and development, skills and training. He has set out ways to back British industry with new procurement rules to protect jobs and contracts from being outsourced to the lowest bidder. He has demanded a seat at the table during the Brexit negotiations to defend trade union and workers’ rights. Defending manufacturing jobs threatened by Brexit must be at the forefront of the negotiations. He has called for the final deal to be put to the British people via a second referendum or at a general election.

But Owen has also talked about the issues which affect our families and our communities. Investing £60 billion extra over 5 years in the NHS funded through new taxes on the wealthiest. Building 300,000 new homes a year over 5 years, half of which should be social housing. Investing in Sure Start schemes by scrapping the charitable status of private schools. That’s why we are backing Owen.

The Labour Party is at a crossroads. We cannot ignore reality – we need to be radical but we also need to be credible – capable of winning the support of the British people. We need an effective Opposition and we need a Labour Government to put policies into practice that will defend our members’ and their families’ interests. That’s why we are backing Owen.

Steve Hibbert, Convenor Rolls Royce, Derby
Howard Turner, Senior Steward, Walter Frank & Sons Limited
Danny Coleman, Branch Secretary, GE Aviation, Wales
Karl Daly, Deputy Convenor, Rolls Royce, Derby
Nigel Stott, Convenor, BASSA, British Airways
John Brough, Works Convenor, Rolls Royce, Barnoldswick
John Bennett, Site Convenor, Babcock Marine, Devonport, Plymouth
Kevin Langford, Mechanical Convenor, Babcock, Devonport, Plymouth
John McAllister, Convenor, Vector Aerospace Helicopter Services
Garry Andrews, Works Convenor, Rolls Royce, Sunderland
Steve Froggatt, Deputy Convenor, Rolls Royce, Derby
Jim McGivern, Convenor, Rolls Royce, Derby
Alan Bird, Chairman & Senior Rep, Rolls Royce, Derby
Raymond Duguid, Convenor, Babcock, Rosyth
Steve Duke, Senior Staff Rep, Rolls Royce, Barnoldswick
Paul Welsh, Works Convenor, Brush Electrical Machines, Loughborough
Bob Holmes, Manual Convenor, BAE Systems, Warton, Lancs
Simon Hemmings, Staff Convenor, Rolls Royce, Derby
Mick Forbes, Works Convenor, GKN, Birmingham
Ian Bestwick, Chief Negotiator, Rolls Royce Submarines, Derby
Mark Barron, Senior Staff Rep, Pallion, Sunderland
Ian Hodgkison, Chief Negotiator, PCO, Rolls Royce
Joe O’Gorman, Convenor, BAE Systems, Maritime Services, Portsmouth
Azza Samms, Manual Workers Convenor, BAE Systems Submarines, Barrow
Dave Thompson, Staff Convenor, BAE Systems Submarines, Barrow
Tim Griffiths, Convenor, BAE Systems Submarines, Barrow
Paul Blake, Convenor, Princess Yachts, Plymouth
Steve Jones, Convenor, Rolls Royce, Bristol
Colin Gosling, Senior Rep, Siemens Traffic Solutions, Poole

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