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11 November 2011

The growth-deniers’ game is up. Just look at the numbers.

Contrary to the coalition government's spin, the economy was recovering nicely under the last Labour

By David Blanchflower

Contrary to the coalition government’s spin, the economy was recovering nicely under the last Labour government.{C}

Today is the day to report back on the battle between the coalition and the opposition over who has been right on the economy. Keynes versus Hayek; growth-deniers versus deficit-deniers (supposedly like me). The jury has now reached its verdict and the coalition is guilty as charged — they have destroyed growth and pushed the UK into a recession worse than we saw in the 1930s. Contrary to the coalition government’s spin, the economy was recovering nicely under the last Labour government.

Yesterday, the European Commission said Britain’s economy will grow by just 0.7 per cent this year, 0.6 per cent in 2012 and 1.5 per cent in 2013. The figures are miles below the 1.7 per cent, 2.5 per cent and 2.9 per cent growth forecast by the Office for Budget Responsibility (OBR) in March. It is broadly consistent with the forecasts of the CBI and NIESR. Given that we have already had growth of 1 per cent in the first three quarters of the year, this suggests that the Commission is expecting negative growth of 0.3 per cent in Q4 and/or the earlier quarters to be revised down. The OECD, the IMF and the EU have now given up on George.

The recession can be split into four parts. First, the “down” part which started in the second quarter of 2008 and went on for a total of five consecutive quarters of negative growth, during which output fell by an enormous 7.4 per cent. Second, the “up” part, which also lasted five quarters (from Q3 2009 to Q3 2010) when under Alistar Darling and Gordon Brown, growth increased by 2.8 per cent. Then, the “flatline” phase under George Osborne, which is also fifteen months long (from Q4 2010 to Q4 2011) with growth of 0.2 per cent, assuming we use the EU’s estimates. Osborne destroyed Darling’s recovery. Then, finally, the “stagnation” phase, lasting 24 months (from Q1 2012 to Q4 2013) with growth of 2.1 per cent over two years, or an average of just over 1 per cent.

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So by the end of 2013, only 5.6 per cent of the 7.4 per cent drop in output will have been restored. This is worse than the 1930-1934 double-dip recession, which had only a slightly bigger output drop but was over in 48 months. By the end of 2013, this will number 69 months and counting. It is no good blaming the eurozone, old chap. This means that Osborne will have caused the longest-lasting downturn for at least a century, which because of his incompetence has now turned into a depression of epic proportions. Acording to the EU Commission’s forecasts, it will take Slasher Osborne 39 months to achieve the same growth of 2.8 per cent as Alistair Darling’s policies achieved in fifteen months. Spin your way out of that one, Mr Fallon. If the problems were all inherited from Labour, how come they were able to grow the economy twice as fast as the coalition has? Blaming the eurozone won’t wash.

Judging by Vince Cable’s comments yesterday, it looks increasingly unlikely that the coalition has much of a plan B. The Autumn Statement is due at the end of the month, but he appeared to rule out tax cuts or a new burst in spending. Infrastructure projects are fine, but will take a long time to have an effect, as will credit easing. That old Tory chestnut of removing regulation and red-tape, as ever, is likely to do diddly squat. The growth-deniers’ game is up. Just look at the numbers.