In a leader published on 29 October 2009, we warned that George Osborne "does not have a plan for growth. He has a plan for a lack of growth." It gives us no pleasure to record that this prediction has been proved correct. In his response to figures showing that GDP shrank by 0.5 per cent in the fourth quarter of 2010, Mr Osborne dwelt on the damage done by "bad weather" but said nothing to suggest that he has a strategy to resuscitate the economy. And even without the Arctic conditions, as official forecasters noted, growth would have been flat, at 0 per cent. The Chancellor's hubristic boast that "the plan is working" now looks like a remarkable misjudgement.

As our economics editor, Professor David Blanchflower, writes on page 17, there is a growing risk of a double-dip recession. The government's reckless decision to raise VAT to 20 per cent will cost the average household £425 a year, robbing the economy of vital spending power at a time of fiscal retrenchment. The Office for Budget Responsibility has forecast that the increase will reduce GDP by 0.3 per cent. And even though the economy may avoid a double dip, it is certain to enter a prolonged period of anaemic growth and high unemployment. A combination of rising prices, falling wages, higher taxes and lower benefits will depress consumer spending for the remainder of this year and beyond. Even before the latest figures, growth was expected to proceed at a slower pace than in the recoveries of the 1970s, 1980s and 1990s.

By contrast, Germany, where an export-led recovery has compensated for austerity, has just enjoyed its strongest year of growth since reunification. In the United States, where President Barack Obama has maintained fiscal stimulus, there are signs of a sustained recovery. It is risible of the Chancellor to claim that Britain has avoided the fate of Greece when so many of our competitors are outperforming expectations.

We should not forget that the coalition inherited a growing economy from Labour. As a result of Alistair Darling's stimulus package and the Bank of England's ultra-loose monetary policy, GDP expanded by 1.1 per cent in the second quarter of 2010 and by 0.7 per cent in the third. The deficit for 2009-2010 was £156.3bn (£21.7bn lower than the original Treasury forecast), a sign that the last government's growth strategy was beginning to fill the hole in the public finances.

Mr Osborne may claim that Labour lacks a "credible deficit reduction plan" but, without growth, so does he. As Richard Lambert, the outgoing director of the CBI, pointed out in his valedictory address, the coalition has all too often pursued policies with no regard for "the damage that they might do to business and to job creation". The government scrapped most of Labour's employment programmes but has since offered little more than a near-mythical faith in the private sector's ability to create jobs.

Confronted by a faltering economy, the Chancellor has few monetary weapons at his disposal. Interest rates are already at record lows and the exchange rate has fallen sharply since the crisis began in 2008. By contrast, after the savage cuts of the 1981 Budget, Geoffrey Howe was able to loosen the money supply by cutting interest rates by 2 percentage points. Insofar as the government has a plan B, it is for further quantitative easing. But with the consumer prices index inflation rate officially running at 3.7 per cent, Mr Osborne will struggle to make the public case for further monetary stimulus. The most coherent option, as we have long argued, is for the government to delay its doctrinaire spending cuts until the economy is out of the recovery phase.

The coalition could and should use the Budget on 23 March to announce a slower pace of cuts, the reversal of the VAT increase and an emergency programme to tackle youth unemployment. It is no longer acceptable for the government to dismiss its critics as "deficit deniers" and to reject calls for a plan B as premature.

As John Maynard Keynes said: "When the facts change, I change my mind." It is time for Mr Osborne to do the same.