Leader: With growth so feeble, Osborne must face his failure

It is unacceptable for the Chancellor to dismiss his critics as "deficit deniers".

It is some measure of Britain's economic woes that George Osborne described growth of just 0.2 per cent in the second quarter of this year as "positive". The UK may not be back in recession but the recovery that began at the end of 2009 has all but come to a halt. The Chancellor needed growth of 0.8 per cent to remain on course to meet the Office for Budget Responsibility's growth forecast for the year, but he fell far short. The economy has now grown by just 0.2 per cent over the past nine months, compared to 2.1 per cent over the previous nine. As a result, the OBR will be forced to downgrade its growth predictions for the fourth time since it was created last May. Not since the 1930s has an economic recovery been so weak.

In his response to the figures, Mr Osborne dwelt at length on the "international instability" that has hindered growth. He was not wrong to do so. The eurozone remains in crisis and the US - owing to the actions of those Vince Cable aptly described as "right-wing nutters" - has come dangerously close to defaulting on its debt. Yet this does not explain why the UK has performed so poorly compared to its competitors, all of which face similar challenges.

The truth is that Mr Osborne's policies have exacerbated Britain's economic problems. His mythical claim that the UK was on the "brink of bankruptcy" had a chilling effect on consumer confidence and investment. His decision to raise VAT to 20 per cent tightened the squeeze on families and automatically added 1.5 per cent to inflation. No one doubts Britain must reduce its huge budget deficit - but a prolonged period of anaemic growth will make that task even harder.

In yet another attempt to outline a growth strategy, Mr Osborne has hinted that he will reduce "very high tax rates" on individuals and businesses. But instead of prioritising the abolition of the 50p rate - which affects only the top 1 per cent of earners - he should cut those taxes that fall hardest on the low-paid. One option, as the shadow chancellor, Ed Balls, has argued, is to introduce a temporary reduction in VAT. That would boost consumer spending, lower inflation, protect retail jobs and increase real wages. When Alistair Darling reduced VAT to 15 per cent during the financial crisis, consumers spent £9bn more than they would otherwise have done. But Mr Osborne and David Cameron have ruled out further fiscal stimulus.

That leaves Vince Cable's call for a "more radical" form of quantitative easing - the closest thing the government has to a plan B. Inflation is running at more than twice its target level, however, and ministers will struggle to persuade the Bank of England of the case for greater monetary stimulus.

The most coherent option, as we have long argued, is to delay the largest spending cuts until the economy is out of the recovery phase. With growth so feeble, it is unacceptable for Mr Osborne to dismiss his critics as "deficit deniers".

The old claim was that financial markets would punish any deviation from the current timetable. The new threat is that they will react against a perception that policy is driven by self-destructive stubbornness rather than the economic evidence. The Chancellor must admit his approach has failed and change course before even greater damage is done.

This article first appeared in the 01 August 2011 issue of the New Statesman, The rise of the far right