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1 February 2011

More bad news for the ideologue George Osborne

The overnight forecast of "lacklustre" growth is at odds with overly optimistic OBR figures.

By David Blanchflower

Over the weekend, our out-of-touch Chancellor, George Osborne, said that he sympathised with those facing hard times — but warned of “financial turmoil” if he scrapped his plans. The issue is not so much whether Osborne should scrap his plans but that he should slow the pace of deficit reduction so as not to compromise growth. Claiming it’s “my way or the highway” is unlikely to give the markets confidence that he is anything other than an incompetent ideologue.

Ed Balls is quite right: Osborne is in denial but the facts are speaking and our bungling Chancellor can only keep his head in the sand for so long. I think the shadow chancellor had it about right in his op-ed in the Independent in the weekend, when he wrote:

He appears complacent, even carefree, and in denial about the risk to jobs and growth, with no apparent concern over the impact of his tax rises and spending cuts. There is no historical precedent to support his projections and he has no Plan B if the scale and pace of his deficit-cutting prove to go too far and too fast. This is not a wise approach to running the economy.

It certainly looks that way.

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The big news overnight is the release of the National Institute for Economic and Social Research’s (NIESR) latest quarterly forecast for the UK economy. The main headline is that growth in 2011 will be “lacklustre”, which is not exactly what Slasher wanted to hear. NIESR is forecasting that the economy will grow by only 1.5 per cent in 2011 and 1.8 per cent in 2012. This contrasts with the Office for Budget Responsibility’s overly optimistic forecasts of 2.1 per cent and 2.6 per cent and the MPC’s utterly unlikely forecast of 2.4 per cent and 2.8 per cent.

Only some of the output lost to the exceptionally poor weather in late 2010 — when GDP fell by 0.5 per cent — will be regained in early 2011, says the NIESR: the average rate of growth across the two quarters they forecast will be just 0.1 per cent. Such a low growth rate would mean that unemployment will rise, perhaps even through the three million mark by 2012. It makes Osborne’s claim that unemployment will fall each year of this parliament look as if it is from cloud cuckoo land.

With the recovery so subdued, NIESR says that this year’s surge in inflation will “peter out” and CPI inflation will fall to 1.8 per cent in 2012. It argues that there is a “case for delaying some of the austerity programme”. Of course there is.

My choice is the highway for Slasher.