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Flipping Tory policies prove a flop

At long last David Cameron has admitted large spending cuts cannot be made next year but is George O

So here we are in south-west Florida and it's still bloody cold. In fact, it was so nippy that lots of the local fish population shuffled off, as they say in fish parlance, this mortal coil. And the turkey vultures from miles around showed up to gorge on the remains. Nature isn't pretty. I counted 25 on the second tee of our local golf course. The superintendent and his staff had pulled the dead fish on to the banks and that meant party time for the scavengers. A very fishy story, to say the least.

Also, the sole Florida crocodile (Crocodylus acutus) that lived around here died this week, apparently from a combination of old age and the cold. Wilma had lived here since the mid-1980s and had been moved away several times for her own good, but each time she found her way back.

She was 12 feet long and was quite a celebrity in these parts. Brass monkey weather for crocodiles, no less. Maybe her death had something to do with the vultures having eaten all the fish? In any case, I don't remember anything like this happening in Brighton where I grew up. Well, not often. I fib: actually never.

So, after much ado, the UK is finally out of recession. GDP growth for the fourth quarter of 2009 was reported as only 0.1 per cent, which Colin Ellis of Daiwa Capital Markets Europe called "underwhelming". Just as those highly paid economic forecasters at Goldman Sachs - bonuses and all - had told us. Though apparently they had predicted that growth would be 0.7 per cent. Ben Broadbent and Kevin Daly, European economists at the bank, said: "Early GDP estimates have a poor record in the UK. Given this, the strength of the surveys and the health of the labour markets, we think that the economy left recession in mid-2009, that it grew by more than 0.1 per cent and that the revised data, years from now, will show that."

Down on the high street

Then there was that supreme forecaster of recessions, Andrew Sentance, an external member of the Bank of England's Monetary Policy Committee, who argued in his most recent speech that "the latest GDP figures released yesterday also showed a return to growth in the final quarter of last year though other indicators - from the labour market, business surveys and measures of retail spending - continue to suggest that recovery started earlier and may have been stronger than the provisional GDP estimates currently suggest".

The Confederation of British Industry's first distributive trades survey of the year, released on 27 January, was markedly downbeat. High-street sales fell at their sharpest annual rate for five months in January, according to the survey. Roughly 28 per cent of retailers said sales had risen in the past year, while 36 per cent said they had dropped. The resulting balance of -8 per cent was worse than forecast. And there was evidence of redundancies coming at AstraZeneca, Shop Direct and Toyota.

Job losses are also expected at Glaxo and the BBC. Retail spending isn't strong - and the cold weather, along with the rise of VAT from 15 per cent to 17.5 per cent, haven't helped. The labour market is certainly not improving yet, Mr Sentance. I will let you know when it does. In fact, there is an equal chance that the reported GDP growth figure will be revised down to zero or up to 0.2 per cent in the future. There is no credible evidence to sustain the claims that we have been out of recession for some time. The "we couldn't possibly be wrong" crowd have egg on their red faces once again.

But the economics has been much less interesting than the politics in the past couple of weeks. The polls seem to have narrowed again and increasingly suggest that the general election will result in a hung parliament. The Conservatives had 9-point leads in polls by BPIX and YouGov. An Ipsos-MORI poll gave them an 8-point lead, while another YouGov poll put it at 7 points. Fiscal and monetary stimuli have driven the recovery. An improving economy is likely to be a vote-winner for Labour.

The reaction of the Conservative shadow chancellor, George Osborne, to the GDP numbers was that "we urgently need a new model of economic growth that includes a credible deficit reduction plan that keeps mortgage rates low, creates jobs and doesn't choke off recovery". It would be wonderful if, in the next two weeks, we discovered oil under Hampshire, gold in the Yorkshire Dales, silver deposits on Clapham Common, and a cure for both cancer and Aids. Osborne is living in a world of make-believe: pretending there are simple solutions to tough problems is just tomfoolery. He has boxed himself into a corner by pre-announcing his treatment for the UK economy, independent of its ills.

Swinge low

Later, Osborne was interviewed on the BBC's Andrew Marr Show, when he once again put his big foot in his mouth by saying that Britain faces an "albatross of debt". We do not. And it's probably not a great idea to talk down the UK economy just before an election. Many people, when they think of having an albatross around their neck, are reminded of the Monty Python sketch in which an irritated John Cleese, dressed as an ice-cream girl, tries to sell a dead albatross the only item he has on his ice-cream tray. I recall there were no buyers.

Osborne went on to say that any fiscal tightening had to be co-ordinated with Bank of England monetary policy. How exactly he plans to do that remains unclear, given the Bank's independence. That could always change, of course. But the present governor, Mervyn King, is likely to have a thing or two to say about it.

David Cameron then softened the tone, undercutting Osborne by saying a Tory government would "make a start" on lowering the deficit, but there would be no "swingeing cuts" in its first year in office. Yet the Conservatives had made their willingness to deliver immediate cuts the central plank of their economic policy, drawing a sharp dividing line between themselves and Labour. It does seem Cameron has been reading this column. All of a sudden, he has flip-flopped on economic policy.

Ken Clarke and I seem to share the view that early cuts would jeopardise recovery. And such a policy is likely to scare off voters. Respondents in opinion polls do not seem to be convinced by an austerity message. Large cuts this year or next would surely plunge Britain back into recession, and Cameron, at long last, appears to see that. I wonder if Osborne is on board.

David Blanchflower is Bruce V Rauner Professor of Economics at Dartmouth College, New Hampshire, and the University of Stirling

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 08 February 2010 issue of the New Statesman, Nightmare on Cameron Street