With tomorrow’s GDP figures likely to confirm that growth remains anaemic or non-existent, David Cameron and Nick Clegg are on a mission to convince the country that they are “straining every sinew” to get the economy moving again.
In an op-ed for the Financial Times, Cameron insists that the coalition is showing “complete single-mindedness on three fronts: confronting our debts; strengthening the competitiveness of our economy; and unlocking global trade.” In a swipe at the likes of Vince Cable, who recently warned of the danger of a double-dip recession, he writes: “Above all, at home and abroad, we must counsel against the pessimism and fear that can become self-fulfilling prophecies in global markets”. This from the man who spread the myth that Britain was on the brink of bankruptcy.
In the meantime, Clegg has announced the second tranche of the government’s Regional Growth Fund, promising £950m to “safeguard or create” 325,000 jobs. The front page of today’s Telegraph declares “£1bn on 100 projects to kick-start the economy”. But this isn’t, of course, new money. The government has ignored calls for an extra £5bn in capital spending, refusing to spend a penny more than the limits set out in the Spending Review. In fact, the Regional Growth Fund actually represents a cut in support for the regions – £1.4bn a year through the abolished Regional Development Agencies cut by two-thirds to £1.4bn over three years with the Regional Growth Fund.
So, despite our best efforts, the government has refused to adopt a plan B. Earlier this month in the New Statesman, nine of the world’s leading economists, including Noble Prize winner Christopher Pissarides, Jeffrey Sachs and Robert Skidelsky, set out imaginative alternatives to ever-greater austerity (you can read their prescriptions in full here). But despite nine months without growth, the highest rate of unemployment for 17 years (2.57m) and an extra £44.5bn of borrowing, Cameron is unwilling to countenance any change to the government’s deficit reduction strategy. Indeed, he persists in the delusion that low market interest rates are a reflection of economic strength, not weakness. He writes:
It is thanks to the credible plan this government has set out that today we have market interest rates of just 2.5 per cent – half what they are in Spain or Italy.
But the fall in rates has much much more to do with the fact that the Bank of England base rate is unlikely to rise until 2013 (since the economy is so fragile), than it has with the supposed “strength” of the British economy. As Paul Krugman has written:
Yields in the US have, of course, plunged rather than risen. And they’ve plunged for the same reason UK yields have plunged: a scarily weak economy suggests that it will be years before the central bank raises rates.
Cameron adds: “Businesses, investors and families all over the country can rest assured that we will not falter. We will stay the course.” To the contrary, that is precisely what they fear.