David Blanchflower: Slasher Osborne's in deep trouble – as new growth gloom is about to show

Economic Outlook: Government cuts are set to become an even bigger drag on growth

The storm clouds continue to gather over the British economy. Last week, two ONS data releases gave us insight into where the economy is and, importantly, further indication of what the first estimate of the GDP first-quarter growth rate is likely to be when it is published on April 25.

With awful industrial production figures, rising unemployment and poor retail sales, the numbers – on construction output and net trade – suggest to me there is a better than 50-50 chance that number will be negative. This would imply the UK is already in a technical double-dip recession, which occurs when there are two successive negative quarters of growth. That, rightly, would generate a political storm.

The data on construction showed the sector is likely to be a net drag on growth. Construction output in February was 17 per cent lower than in November and 4.6 per cent less than a year earlier, which was considerably worse than economists had expected. Even though construction accounts for only 8 per cent of the economy, if these numbers are repeated in March they would represent a significant downward pull on GDP growth.

The trade figures were especially shocking. The UK's deficit on seasonally adjusted trade in goods and services rose to £3.4bn in February from £2.5bn in January. Negative net trade also lowers GDP growth. The numbers are presented in the table above.

The deficit on seasonally adjusted trade in goods was £8.8bn in February, compared with £7.9bn in January. Excluding oil and erratic items, the seasonally adjusted volume of exports was 5.3 per cent down and the volume of imports 0.9 per cent lower in February, compared with January.

The deficit increased further in February to £3.4bn. This was driven by a 2 per cent monthly drop in export values while import values edged up by 0.2 per cent. January's deficit was revised down from £1.8bn to £2.5bn, extending the pattern of downward revisions we have seen to almost all recent economic data releases.

Of particular note is that the worsening balance of trade in goods is not principally due to the weakness of the Eurozone, although it almost certainly will be soon. It worsened sharply because of a decline in exports to non-EU countries, from £12.8bn in January to £11.7bn in February. Indeed, the balance of trade in goods to the EU in February was less than a year earlier (-£3.8bn compared with -£4bn). To this point, the government can't really blame its problems on the slowing Eurozone, which is the UK's major export market. It isn't as if it didn't know about the problems in the Eurozone when it launched its reckless austerity programme.

That situation is set to worsen because GDP growth in the Eurozone was -0.3 per cent in Q4 2011 with 12 of the 17 euro area countries having negative growth. Greece is likely to be heading back into recession, and there is little sign of improvement in any of these countries. The OECD forecasts negative growth for the weighted average of the three largest euro countries, France, Italy and Germany, for the last quarter of 2011 and the first one of 2012 – as it is for the UK, which would mean all would be in double-dip recession. As my friend Nouriel Roubini has said: "The trouble is that the Eurozone has an austerity strategy but no growth strategy." Sound familiar? Developments in Spain last week, where bond yields rose to 6 per cent, and in Italy where they also rose, suggest the euro crisis is back and more bailouts are on the way. It is hard to see how net trade is about to make a positive contribution to UK growth.

The table of the latest forecasts from the Office for Budget Responsibility shows the expenditure contributions to growth from the six major components – private consumption, business investment, dwelling investment, government, inventories and net trade. What is clear is that net trade is supposed to contribute half the growth of 0.8 per cent in 2012, which is not going to happen. Plus the OBR believes net trade will make a major contribution in 2013 and to a lesser degree in 2014 and 2015, which seems fanciful. The 10 per cent appreciation of sterling against the euro over the last nine months certainly won't help.

The OBR's past forecasts have been overly optimistic, embarrassingly being revised downwards in every subsequent forecast, and the latest is inevitably going to follow in that tradition. For example, in its June 2010 Budget forecast, the OBR predicted that in 2011 business investment would grow by 8.1 per cent whereas the actual outcome was 0.2 per cent.

The OBR forecasts growth in investment of 6.4 per cent in 2013, 8.9 per cent in 2014 and double digits after that, and consumption growth of 1.3 per cent in 2013 rising to 2.3 per cent in 2014 and 3 per cent after that. Same forecast pushed out a year or so. Wrong then, wrong now. Dream on.

The table makes clear that government cuts are set to become an even bigger drag on growth as we move towards an election, with the deepest in 2015. But never fear, apparently private consumption and investment will pick up in 2013 along with dwellings investment, and growth will accelerate. Even though they didn't in 2011 and don't look like they are going to in 2012. Pigs might fly.

The evidence from the Bank's Agents latest report is that consumer demand is growing 'only at a gradual pace' while investment intentions "point to only modest growth in capital spending over the coming year". The EU's Economic Sentiment Index for the UK dipped again in March, driven by a big drop in confidence of retailers, and at 91.4 is well below its level of 102.4 when the coalition took office in May 2010. So it doesn't look like things are going to get better any time soon. Slasher Osborne's austerity plan is in deep political and economic trouble.

David Blanchflower is professor of economics at Dartmouth College, New Hampshire, and a former member of the Bank of England's Monetary Policy Committee

PROMOTED VIDEO
News
peopleGerman paper published pictures of 18-month-old daughter
Arts and Entertainment
'A voice untroubled by time': Kate Bush
musicKate Bush set to re-enter album charts after first conerts in 35 years
Life and Style
tech
Arts and Entertainment
Robin Williams' life story will be told in a biography written by a New York Times reporter
arts + ents
News
i100
Life and Style
food + drink
Life and Style
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Voices
voices
Sport
Roger Federer is greeted by Michael Jordan following his victory over Marinko Matosevic
tennisRoger Federer gets Michael Jordan's applause following tweener shot in win over Marinko Matosevic
News
peopleJustin Bieber accuses paparazzi of acting 'recklessly' after car crash
News
people
Arts and Entertainment
Oppressive atmosphere: the cast of 'Tyrant'
tvIntroducing Tyrant, one of the most hotly anticipated dramas of the year
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Client Services Executive / Account Executive - SW London

£23000 - £26000 per annum: Ashdown Group: Account Executive / Client Services ...

PA to CEO / Executive Secretary

£36000 - £38000 per annum: Ashdown Group: Executive PA to CEO & Executive Dire...

Generalist HR Administrator, Tunbridge Wells, Kent - £28,000.

£25000 - £28000 per annum: Ashdown Group: Generalist HR Administrator - Tunbri...

Management Accountant

£30-35k + Excellent Benefits: Guru Careers: We are seeking a Management Accoun...

Day In a Page

Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?
Rachael Lander interview: From strung out to playing strings

From strung out to playing strings

Award-winning cellist Rachael Lander’s career was almost destroyed by the alcohol she drank to fight stage fright. Now she’s playing with Elbow and Ellie Goulding
The science of saturated fat: A big fat surprise about nutrition?

A big fat surprise about nutrition?

The science linking saturated fats to heart disease and other health issues has never been sound. Nina Teicholz looks at how governments started advising incorrectly on diets
Emmys 2014 review: Can they genuinely compete with the Oscars

Can they genuinely compete with the Oscars?

The recent Emmy Awards are certainly glamorous, but they can't beat their movie cousins
On the road to nowhere: A Routemaster trip to remember

On the road to nowhere

A Routemaster trip to remember
Hotel India: Mumbai's Taj Mahal Palace leaves its darker days behind

Hotel India

Mumbai's Taj Mahal Palace leaves its darker days behind
10 best pencil cases

Back to school: 10 best pencil cases

Whether it’s their first day at school, uni or a new project, treat the student in your life to some smart stationery
Arsenal vs Besiktas Champions League qualifier: Gunners know battle with Turks is a season-defining fixture

Arsenal know battle with Besiktas is a season-defining fixture

Arsene Wenger admits his below-strength side will have to improve on last week’s show to pass tough test
Pete Jenson: Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought

Pete Jenson: A Different League

Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought
This guitar riff has been voted greatest of all time

The Greatest Guitar Riff of all time

Whole Lotta Votes from Radio 2 listeners
Britain’s superstar ballerina

Britain’s superstar ballerina

Alicia Markova danced... every night of the week and twice on Saturdays
Berlin's Furrie invasion

Berlin's Furrie invasion

2000 fans attended Eurofeurence
‘It was a tidal wave of terror’

‘It was a tidal wave of terror’

Driven to the edge by postpartum psychosis