The coalition catches up to the disarray of their economic policies

David Blanchflower logo

The new evidence supports it: the Chancellor should scrap his ridiculous austerity plans and invest in jobs.

It hasn't taken long for the OBR's forecast, published last Wednesday, to look out of date. Downward revisions have been the watchword ever since the OBR was set up in May 2010. For example their forecast for growth in 2011 has been revised down five times, from 2.8 per cent to 0.8 per cent, while its forecast for 2012 has also been revised down four times from 2.6 per cent to 0.8 per cent. The latest ones assume all will be well from 2013 onwards -- that is, that there will be what economists call "mean reversion". Sadly, that looks like more wishful thinking.

Now less than a week later, data published on Thursday and Friday of last week, in the two days after the Budget speech, already suggest the OBR's latest forecast is overly optimistic. Growth looks likely to have slowed once again and may well now be negative in Q1 2012. Such green shoots as there were have now been stomped on, suggesting that the UK's growth performance is set to worsen again. This is in addition to the bad borrowing data and the weak report on the economy by the Bank of England's agents, both published on the morning of the Budget. These new data releases are of particular relevance given Monday's final day of Budget debate in the House of Commons. This time, the OBR's forecast fell apart after only two days.

The new evidence suggests that retail sales have slowed sharply, consumer confidence is falling again, and housing market activity has slowed -- which suggests house prices are set to drop again. There is every prospect the economy has already entered a double-dip recession: GDP growth in Q1 2012 is probably going to be a small negative number. Osborne's claim that he has little wriggle room, supported by most of the media, is only true under his plans. Better than picking my 84 year old mum's pocket to pay for tax cuts for millionaires, the Chancellor should scrap his ridiculous austerity plans and invest in jobs.

First, despite heavy discounting by retailers, the retail sales data for February fell by a much greater than expected 0.8 per cent: the biggest fall in nine months. Spending was down 1.5 per cent in non-food stores on the month. In addition, January's increase was revised down from 0.9 per cent to 0.3 per cent. It will be interesting to see if and when the Tory apologists come out and say they are certain these numbers will be revised upwards in due course, just as they did on the GDP growth numbers that have also been revised down. They feebly argue that things really couldn't possibly be this bad because their chap really, really knows what he is doing, even though he doesn't. They know no such thing, so don't believe a word they say. Since 1998, the average adjustment to retail sales figuresf rom the initial estimate has been down 0.1 per cent and since January 2007, the average has been down 0.2 per cent.

If it were as simple as increasing the numbers, then the ONS would have made the statistical adjustment already. It isn't. The moral of the tale? Do not trust anyone who claims to know that things are really much better than they seem. They are just making it up. Revisions tend to be small and equally plausibly could be up or down.

Second, the Nationwide Consumer Confidence index for February fell by three points. The main index remains marginally above the near all time low of 38 recorded in December 2011, but remains more than 30 points below the long run average of 76. Robert Gardner, Nationwide's chief economist, said:

Even though interest rates remain at historic lows and the Bank of England opted to inject another £50bn into the financial system in early February, weak labour market conditions combined with weaker than expected economic growth are continuing to weigh on confidence.

Consumer spending is set to fall, which is usually what happens when consumer confidence dives.

Third, according to the British Banker's Association, the number of mortgages approved in February dropped by over 10 per cent compared to January. The value of those loans fell even more sharply, by roughly 13 per cent. The drop was driven more or less equally by loans for house purchase and for remortgaging. As Capital Economics has noted, the drop in the number of loans for house purchase, "meant that all the gains seen over the previous seven months were wiped out".

Interestingly, over the last ten YouGov surveys, the Labour Party averages a five point lead over the Tories. In the YouGov/Sun poll taken on 22 March, Labour held an eight point lead. In the same poll, when asked "Do you think George Osborne is doing a good job or a bad job as Chancellor of the Exchequer?", excluding the don't knows, two thirds said he was doing a bad job and only one third said he was doing a good job. Osborne is in deep trouble. A while ago, I argued that the coalition's economic policy was in disarray and they just didn't realise it yet. They are starting to do so, if Vince Cable's comments over the weekend are anything to go by.