The coalition* has so far dismissed those who warn of the danger of a double-dip recession as “Labour scaremongers”. But with an increasing number of figures arguing, as our economics columnist, David Blanchflower, has done for months, that the risk is real, one wonders whether this line of attack is sustainable.
In an interview in today’s Times (£), Dr Martin Weale, the newest member of the Bank of England’s Monetary Policy Committee, warns of the “real risk” of a second downturn, adding: “People would be foolish to say that it can’t happen or that it is definitely not going to happen.” He concludes that the Bank’s growth forecast of 2.8 per cent for 2011 is over-optimistic.
Weale’s warning follows an important intervention by Policy Exchange’s Andrew Lilico, not known as a left-wing radical, who says he has “always expected” the UK to suffer a double dip. He points out that double-dip recessions are far more common than many assume:
[T]here were double-dip recessions in 1992 (output contracted in 1992Q2 after two quarters of growth), 1976 (output contracted in 1976Q2 after two quarters of growth), 1974 (output contracted in 1974Q4 after two quarters of growth), 1962 (output contracted in 1962Q4 after three quarters of growth), 1958 (output contracted in 1958Q2 after two quarters of growth) and 1957 (output contracted in 1957Q2 after two quarters of growth).
Indeed, the only recession that did not involve a double dip was that of the early 1980s. Yet, despite this warning from history, George Osborne is said to believe that talk of a double dip is part of an “operation run by the left and its chums and driven by the likes of Ed Balls”. Can we now expect Osborne to dismiss the likes of Weale and Lilico as Labour stooges?
Rather than traducing his critics, Osborne would be well advised to draw up a plan B — and fast. Having argued that the government should cut its way out of the recession (advice thankfully rejected), he may soon learn that you can’t cut your way out of a double dip.
* With the honourable exceptions of Ken Clarke and Vince Cable.
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