Support 100 years of independent journalism.

  1. Business
  2. Economics
25 October 2010

The coalition’s growth gamble is about to become clear

New figures expected to show sharp slowdown in growth.

By George Eaton

If last week was dominated by the cuts debate, this week will be dominated by the growth debate. Both David Cameron and Ed Miliband are addressing the CBI’s annual conference today, the latter making his first speech to business leaders since his election.

The data will speak for itself on Tuesday when the growth figures for the third quarter of this year are published – the first to account solely for the coalition’s time in office. As today’s FT reports, the consensus forecast is for the data to show that the economy grew at 0.4 per cent in the third quarter, down from 1.2 per cent in the second quarter. But, since conventional economic wisdom is rarely right, it’s worth pointing out that the forecasts range from a quarterly contraction of 0.2 per cent to growth of 0.8 per cent.

In recent weeks Ed Miliband and Alan Johnson have avoided talk of a double-dip recession, instead predicting that the coalition’s cuts will push Britain into an “L-shaped recession”. But with the cuts and the VAT rise yet to come, we can expect growth of 0.4 per cent or lower to spark new talk of a double dip.

Here, for instance, is the verdict of Samuel Tombs at Capital Economics: “With the fiscal squeeze not yet fully under way, a figure in this region [0.4 per cent] would clearly cast further doubt on the ability of the coalition to force through a painful fiscal tightening without throwing the economy back into recession”.

Sign up for The New Statesman’s newsletters Tick the boxes of the newsletters you would like to receive. Quick and essential guide to domestic and global politics from the New Statesman's politics team. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s global affairs newsletter, every Monday and Friday. A handy, three-minute glance at the week ahead in companies, markets, regulation and investment, landing in your inbox every Monday morning. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A weekly dig into the New Statesman’s archive of over 100 years of stellar and influential journalism, sent each Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.
I consent to New Statesman Media Group collecting my details provided via this form in accordance with the Privacy Policy

In addition, it’s worth remembering (as few did last week) that George Osborne’s room for manoeuvre is extremely limited. Interest rates are already at record lows and the exchange rate has fallen sharply since the crisis began. By contrast, as Robert Skidelsky points out in this week’s issue, after the savage cuts of the 1981 Budget, Geoffrey Howe was able to cut rates by 2 per cent and prevent a precipitous economic decline.

Should growth turn negative, Osborne’s only option (other than “reprofiling” the cuts) is further quantitative easing by the Bank of England. By the end of this week, the scale of the coalition’s economic gamble will become clear to all.