The number crunchers at the ONS have just announced that the economy grew by 0.5 per cent in the third quarter, a better-than-expected figure but still a sluggish one. In the last 12 months, the economy has grown by just 0.5 (-0.5 per cent in Q4, 0.4 per cent in Q1, 0.1 per cent in Q2 and 0.5 per cent in Q3) and Osborne has no hope of meeting the OBR’s forecast for 2011 growth (1.7 per cent), with deleterious consequences for his borrowing targets. Over the same period, the US grew by 1.6 per cent. Britain is still in the growth slow lane.
In political terms, today’s figures will change little. George Osborne will continue to stand by his deficit reduction plan and Labour will (rightly) continue to argue that the government is cutting “too far, too fast”. In the last year, 240,000 public-sector jobs have been lost and 264,000 private-sector jobs have been created, a net increase of just 24,000. Worse, the Chartered Institute of Personnel and Development has predicted that 610,000 public-sector jobs will be lost by 2016, 210,000 more than forecast by the Office for Budget Responsibility.
Attention will now move swiftly to 29 November and the Chancellor’s autumn statement (the equivalent of the old pre-Budget report). In some respects, the government has already adopted a plan B in the form of credit easing, accelerated deregulation and more quantitative easing by the Bank of England (described by Osborne in 2009 as “the last resort of desperate governments when all other policies have failed”). The question remains whether it will change course again by temporarily slowing the cuts or offering further fiscal stimulus (a plan C, if you like). Today’s figure was not bad enough to force a change of direction but nor was it good enough to offer any hope that Osborne will meet his deficit reduction targets. The government has already been forced to announce £44.5bn of extra borrowing due to lower growth and higher unemployment. Expect Osborne to announce billions more when he delivers his statement later this month.
And there’s every reason to fear that the fourth quarter will be worse. The most recent Bank of England minutes revealed that the Monetary Policy Committee believes growth will be close to zero in the final three months of the year. But so managed have our expectations become that some growth, any growth will be welcomed.
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