Risk of sleepwalking into a triple-dip recession

Wednesday 23 January 2013

The idea of a UK triple-dip recession used to be the stuff of nightmare.

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Now it is being talked of as almost a foregone conclusion. The fourth quarter growth figures, due out on Friday, are widely predicted to be negative. Meanwhile, some economists are already blaming the snow and ice for wrecking positive forecasts for the first quarter of 2013. If they are right, the one-time nightmare will have become reality.

Back in 2010 savage cuts in public spending were largely predicated on the vital importance of the UK retaining its Triple A credit rating. Yesterday there were predictions the rating is threatened after the Government was forced to borrow an extra £15.4 billion in December but now that prospect is met with a shrug. Meanwhile, there is another raft of gloomy figures and forecasts from Scotland's business community. The Scottish Chambers of Commerce report declines in all sectors in the fourth quarter and CBI Scotland survey results show the first fall in exports in three years and a seventh successive quarter of declining domestic orders. And one-third of building firms say they may have to lay off staff, according to the Federation of Master Builders in Scotland. The traditional advice to someone in a deep hole is to stop digging and preferably swop their spade for a ladder. George Osborne and Danny Alexander do not seem to be familiar with this concept. At Cabinet yesterday they were suggesting that a further £10bn of savings would have to be found from departmental budgets for the year 2015/16, on top of the £6bn already pencilled in. So expect more bad news in the spring budget, followed by more of what the Prime Minister's official spokesman described as "very difficult decisions" in the subsequent spending review. It does not appear to have occurred to the Coalition that continuing to slash public spending will merely make a bad situation worse. Who is kidding whom? Yesterday the PM's spokesman continued to insist the economy was healing. Perhaps he meant heeling. The fabled one million new jobs turn out to consist largely of self-employed positions (a sector with a very high attrition rate), jobs reclassified from the public sector and short-term Government job creation schemes. The upbeat predictions of growth from the oft-quoted Office for Budget Responsibility have been brimming with misplaced wishful thinking. The ongoing woes in the eurozone are not the Coalition's fault but, as former monetary policy committee member Adam Posen told the Treasury Select Committee yesterday, the speed and extent of public spending cuts have hampered the UK's recovery. Instead of a suicidal obsession with no turning back, the Coalition needs to do what it can. That includes creating a business investment bank that is big enough to make a difference and unleashing a major housebuilding initiative. The latter would have the double benefit of creating employment and tackling homelessness. Otherwise, soon the talk may be of a quadruple dip.

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Risk of sleepwalking into a triple-dip recession

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