Why the Tories shouldn't get excited about "good" economic news

The economy might appear to be improving but forecasters predict a "triple-dip recession" and rising unemployment.

This week's economic news has prompted hope among the Tories that the tide is finally turning in their favour. Employment is at a record high, inflation is down to 2.2 per cent, its lowest level since November 2009, and borrowing has fallen to its lowest level for four years. The positive trend will continue next week when the Office for National Statistics (ONS) announces that the economy finally returned to growth in the third quarter (the National Institute of Economic and Social Research, for instance, has predicted growth of 0.8 per cent). Team Osborne hope that all of this will allow them to tell a plausible story of recovery.

However, it's worth pointing out several inconvenient truths. First, the next set of growth figures will be artificially inflated by the bounce back from the extra bank holiday in the previous quarter (which reduced growth by an estimated 0.5 per cent) and by the inclusion of the Olympic ticket sales (which are expected to add around 0.2 per cent to GDP). So, if the ONS announces that the economy grew by 0.8 per cent in the third quarter, the underlying rate of growth will be just 0.1 per cent.

Worse, many expect the economy to contract in the fourth quarter (what our economics editor David Blanchflower has termed a "triple-dip recession"). Bank of England MPC member Martin Weale has warned: "The Jubilee depressed output in the second quarter so you get an automatic bounce back. But if we talk about underlying growth then I think the economy is flat. I certainly would not say there is no risk of [a triple-dip recession] happening." Martin Beck, UK economist at Capital Economics, told the Today programme last week: "we expect the economy to start contracting again in the fourth quarter."

On employment, the picture is similarly mixed. As I noted when the most recent figures were published on Wednesday, 59 per cent of the 212,000 jobs created in the last quarter are part-time and nearly half (101,000) are in London, suggesting that the labour market benefited from a temporary Olympics effect. Adequately paid, full-time employment is still remarkably hard to come by. Of the new jobs created over the last three months, one in three offer fewer than 15 hours week a work, while 54 per cent offer fewer than 30 hours. A near-record 1.4 million people are working part-time because they can't find full-time jobs. It's also worth noting that most forecasters expect unemployment to rise significantly next year as further spending cuts, a lack of growth and rising productivity restrict job creation. The CBI, for instance, predicts that unemployment will increase by nearly 200,000 to 2.7m.

Finally, the deficit. While September's figures were better-than-expected, borrowing so far this year remains £2.7bn (4.2 per cent) higher than in the same period last year and George Osborne is still expected to miss his annual target by £5-10bn. The Chancellor aims to borrow no more than £121bn this year, but in the first six months of 2012 he's borrowed £65.1bn. As a result, when he delivers his autumn statement on 5 December, Osborne will likely be forced to postpone his goal of eliminating the structural deficit (originally scheduled for 2015) for a third year - to 2018. Having once hoped to offer significant cuts in taxation at the next election, the Tories will only be able to promise yet more austerity.

Chancellor George Osborne speaks at the Conservative conference in Manchester earlier this month. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Labour tensions boil over at fractious MPs' meeting

Corbyn supporters and critics clash over fiscal charter U-turn and new group Momentum. 

"A total fucking shambles". That was the verdict of the usually emollient Ben Bradshaw as he left tonight's Parliamentary Labour Party meeting. His words were echoed by MPs from all wings of the party. "I've never seen anything like it," one shadow minister told me. In commitee room 14 of the House of Commons, tensions within the party - over the U-turn on George Osborne's fiscal charter and new Corbynite group Momentum - erupted. 

After a short speech by Jeremy Corbyn, shadow chancellor John McDonnell sought to explain his decision to oppose Osborne's fiscal charter (having supported it just two weeks ago). He cited the change in global economic conditions and the refusal to allow Labour to table an amendment. McDonnell also vowed to assist colleagues in Scotland in challenging the SNP anti-austerity claims. But MPs were left unimpressed. "I don't think I've ever heard a weaker round of applause at the PLP than the one John McDonnell just got," one told me. MPs believe that McDonnell's U-turn was due to his failure to realise that the fiscal charter mandated an absolute budget surplus (leaving no room to borrow to invest), rather than merely a current budget surplus. "A huge joke" was how a furious John Mann described it. He and others were outraged by the lack of consultation over the move. "At 1:45pm he [McDonnell] said he was considering our position and would consult with the PLP and the shadow cabinet," one MP told me. "Then he announces it before 6pm PLP and tomorow's shadow cabinet." 

When former shadow cabinet minister Mary Creagh asked Corbyn about the new group Momentum, which some fear could be used as a vehicle to deselect critical MPs (receiving what was described as a weak response), Richard Burgon, one of the body's directors, offered a lengthy defence and was, one MP said, "just humiliated". He added: "It looked at one point like they weren't even going to let him finish. As the fractious exchanges were overheard by journalists outside, Emily Thornberry appealed to colleagues to stop texting hacks and keep their voices down (within earshot of all). 

After a calmer conference than most expected, tonight's meeting was evidence of how great the tensions within Labour remain. Veteran MPs described it as the worst PLP gathering for 30 years. The fear for all MPs is that they have the potential to get even worse. 

George Eaton is political editor of the New Statesman.