A recession warning for Osborne

The UK is forecast to recover at a slower rate than every G7 country except Italy.

Away from pasties and jerry cans, there's the small matter of our shrinking economy. Yesterday the Office for National Statistics revised growth for the final quarter of 2011 down to -0.3 per cent, today the OECD predicted that the UK will suffer a double-dip recession - defined as two consecutive quarters of negative growth. The economy is forecast to shrink by -0.1 per cent in the first quarter of this year.

And that's not the only prediction to haunt George Osborne's nights. As the OECD table below shows, the UK is expected to recover at a slower rate than every G7 country except Italy.

GDP growth in the G7 economies

Annualised quarter-on-quarter growth

A

While we're forecast to contract by 0.4 per cent [in annual terms] in the next quarter, the US, where the Obama administration has maintained fiscal stimulus, is expected to grow by 2.9 per cent. Osborne's previous boast that that the UK had grown faster than the US "despite fiscal stimulus in the former and fiscal consolidation in the latter" now looks rather foolish.

As Adam Posen of the Bank of England's Monetary Policy Committee noted in his speech yesterday:

Cumulatively, the UK government tightened fiscal policy by 3% more than the US government did - taking local governments and automatic stabilizers into account - and this had a material impact on consumption. This was particularly the case because a large chunk of the fiscal consolidation in 2010 and in 2011 took the form of a VAT increase, which has a high multiplier for households.

Today, the Chancellor has responded by noting that "our own" Office for Budget Responsibility says the UK will avoid a double-dip. Indeed, the OBR predicts growth of 0.3 per cent in the first quarter of this year. Nonetheless, Osborne has already prepared his defence, insisting that "You can't turn round the British economy overnight. It became very dependent on the City of London, very dependent on public spending which had to be borrowed and we have got to change that". But after 15 months of no growth, how many will be willing to listen?

The politics of a double-dip could be more complex than many expect. At times of economic trouble, voters often look to the government, rather than the opposition, to see them through the storm. After all, despite the near absence of growth since Osborne took the helm, the Tories retain a four-point lead over Labour as the best party to manage the economy.

Conversely, a double-dip could be the point at which the Tories are finally forced to "own" the economy, no longer able to blame "the mess" they inherited from Labour or the eurozone crisis. "The man who took us back into recession" is not an attack line that Osborne will want to hand Ed Balls. He and the rest of the coalition face a nervous wait until 25 April when the ONS publishes that all-important figure.

George Osborne insisted "you can't turn the British economy overnight". Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.