It wasn't supposed to be like this

 

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Negative growth and the danger of a double dip; debt rising faster and the deficit falling slower than forecast in the Treasury plan laid out when Alistair Darling was chancellor; and the hoped for re-balancing of the UK economy on hold as the manufacturing sector shrinks instead of grows.

The prime minister will, no doubt, point to troubles imported from the eurozone. To which Labour replies that it is the shrinkage of domestic demand that caused the slowing of growth until the end of last year.

The debate about the recent past feels wearisomely familiar. Not so, though, that about the future.

The IMF's chief economist Olivier Blanchard has called on the UK to consider slowing the speed of cuts in the short term to avoid strangling the recovery:

Blanchard: If the economy is doing worse, let the automatic stabilisers work for example, which is the case in the UK, which is partly the case in Germany as well. You can even go further than that, if growth is really dismal then you may decide that you're going to go a bit more slowly about the discretionary part of the budget and for the UK there's some indication that this happened with respect to the revision in potential output, yes to the extent that these countries are not under the gun from the markets, have plausible medium term plans, they can slow down and it would help.

BBC: So we don't need to cut as deep as we were?

Blanchard: You have some room to do something if needed, yes if growth were to be even worse than we have forecast.

BBC: So more flexibility than we thought?

Blanchard: Yes you have, again, there's another issue which is if you have announced the plan and you deviate from the plan you may lose credibility. So given that the UK has announced the plan moving from it is a bit more difficult than it might be for another country.

The organisation's boss, Christine Lagarde, is more diplomatic, perhaps because her demand for more resources for the Fund relies on maintaining good relations with the chancellor and other Treasury ministers.

Inside government there will now be much soul-searching about how to stimulate growth. The much-vaunted package of infrastructure investment, government-backed business loans and a stimulus to the housing market will be examined to see if they are actually delivering.

There is one other intriguing possibility - tax cuts. The coalition is committed to steadily increasing income tax allowances to take poorer people out of tax altogether. At a time when ministers want to prove that they are committed to fairness, an accelerated increase might look rather tempting.

They would also be following the advice of Gus - now Lord - O'Donnell, the recently departed Cabinet Secretary, who included tax cuts on his list of things to do if the economy flatlined. The other things he recommended have, by the way, already been announced.

 
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  • rate this
    +1

    Comment number 21.

    Yet more breaking news!
    Bob Diamond, the chief executive of Barclays could receive a bonus of £10 million as city banks and other financial institutions prepare to pay out billions of pounds in banker bonuses before the end of the financial year.

  • rate this
    -1

    Comment number 20.

    Bo surprise Cameron points to troubles imported from EZ. To which I reply: it is the shrinkage of Britain's DOMESTIC demand that has caused the slowing of growth. Official UK public sector debt passed £1 trillion for the first time. This is equivalent to 64% of GDP.
    Does public sector debt of £1 trillion matter? Well, it wasn't supposed to be this way.

  • rate this
    +1

    Comment number 19.

    The OBR expected that private consumption would remain strong. It hasn't. Hence the miscalculation over growth.

    Yet without fiscal retrenchment we would be enjoying a sterling crisis.

    Manufacturing needs to be expanded within the economy but it has to come from a low base at the same time as export markets are shrinking.

    This is going to take radical action to resolve. Is anyone up to it?

  • rate this
    -3

    Comment number 18.

    Poor old EdM, forced to be numpty Labour.

    'Economy has been flatlining since Autumn 2010.'

    Oh dear. Who put it there?

  • rate this
    -2

    Comment number 17.

    12

    Pretty much the whole of human history has been a story of more people and living longer and finding better ways to do / make things, which translates to economic growth and higher living standards.

    There's no particular reason, as far as I can see, why our generation here in 2012 (on the planet for less than the blink of an eye, relatively speaking) should be trying to call time on this.

  • rate this
    +2

    Comment number 16.

    and DC is still blaming Labour...

  • rate this
    +4

    Comment number 15.

    Coats@13
    Yes, I agree. And I bet the Tories now wish they hadn't pilloried the 'global factors' excuse, it would have come in handy now.

  • rate this
    +2

    Comment number 14.

    Other breaking news!!
    The Royal Bank of Scotland is estimated to issue banker bonuses and pay totalling £2.5 billion with the average investment banker set to receive a bonus of £140,000. This is lower than other independent banks whose bonus payments are estimated to be around £200,000.

  • rate this
    +5

    Comment number 13.

    To use the Gordon Brown excuse, all this is against the backdrop of a global recession.

    Working in industries reliant on export markets I am afraid little this or any government can do will improve my prospects until the US & EU show marked signs of recovery.

    However whilst keeping up the facade of austerity to appease the markets the coalition could show some flexibility in their plans.

  • rate this
    +8

    Comment number 12.

    Why does the economy constantly have to grow, what is wrong with reaching a level and maintaining it? Surely the only reason is to make the population wealthier, which to a large extent is pointless because all that does is feed the inflationary merrygoround.

    Clearly to have a policy of no economic growth you also need a policy of zero population growth, which is also very desirable.

  • rate this
    +3

    Comment number 11.

    Perhaps it wouldn't have been like this if all/some of that quantative easing money had gone to people to spend/ invest (most would have put at least some towards their mortgages anyway) instead of banks to horde.

  • rate this
    +1

    Comment number 10.

    In the last two weeks ive had 4 e-mails, 3 cv's by post and four phone calls from trademen asking if i have any work. I have never had that many in such a short space of time ever. Its a good coal face indicator of declining economic recovery and failed coalition economic policies.

  • rate this
    +1

    Comment number 9.

    I think this period will be viewed in retrospect as a period of politic and economic insanity. When people realise a hatchet has been taken to our social fabric in the name of 'austerity', we will hopefully regain our enthusiasm for engaging in the democratic process.

  • rate this
    +1

    Comment number 8.

    The Tories plan isn't working. The IMF know it isn't working, the press know it isn't working, economic experts know it isn't working.

    Labour of course know it isn't working but lack the leadership to get this message across to the general public, who seem to think that the shrinking of the economy is 'all part of the plan'.

  • rate this
    +2

    Comment number 7.

    Well its pretty obvious the attention internationally is increasingly inward looking towards domestic stimulation. Plan please for UK. Consumer confidence continues to fall and needs attention.

  • rate this
    -4

    Comment number 6.

    Declare a jubilee: all debts paid, and start over, sustainably this time. Businesses will be able to expand and hire people, who will pay tax so that the government is able to meet its obligations to its citizens, while individuals will be able to put money into the community instead of giving it to the bank! Financial institutions will whine, but they'll just have to work harder and fairer.

  • rate this
    +2

    Comment number 5.

    As things get tougher and tougher for ordinary folk, Cameron says we are all in it together, we must pay our fair share of taxes.

    I'd love to see him follow the example of Mitt Romney and disclose his tax returns for the last ten years.

    Are we really all in it together ?

    Nick - ever thought of putting him on the spot ?

  • rate this
    +2

    Comment number 4.

    Really bad.

    Also not what we were promised back in May 2010. I read the tory and libdem manifestos very carefully (and have just checked them again) and also the 'coalition agreement' ... no mention whatsoever of plans to implement a double dip recession.

    Sick and tired of being lied to by politicians. Bet most of us are.

    Plan for jobs / growth urgently required. Let's have it please.

  • rate this
    -2

    Comment number 3.

    Ballooning unemployment figures, reccession warnings and realistic threats in break up of the union.

    British schadenfreude at us europeans didn't last very long, did it?

  • rate this
    0

    Comment number 2.

    Tories set out to 're-balance' the economy: reduce public & service sectors while increasing manufacturing for export.

    Totally out of tory control the world economy is not playing ball with the second part of the scheme.

    But let's be quite clear ....

    The contraction of the domestic economy is an entirely predictable - and deliberate - part of the tory policy.

 

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