Outlook One of the mantras of George Osborne in insisting on seeing through his deficit reduction plan is that it commands enormous support internationally. Well, it has not been the best 48 hours for that argument. First the President of the United States pointedly turned down the invitation to publicly endorse the Chancellor's economic experiment. Then the OECD – hardly known for its wishy-washy liberal views on borrowing – suggested Mr Osborne might have no choice but to slow down.
The Chancellor will no doubt be unrepentant: Plan A or the highway, as you might characterise it. Such is the nature of politics: any hint of a u-turn would be seized upon by Mr Osborne's political opponents. In any case, it suits him to cultivate the image of an unbending Chancellor committed to fiscal rectitude, just as it suits Ed Balls, the shadow Chancellor, to give the impression that his own programme is so much less aggressive, even though it amounts to cuts of only a few billion less each year.
The danger for Mr Osborne is that he sticks to his guns so dogmatically that even those smart enough to see through the rhetoric fall into the trap of thinking a deceleration of deficit reduction, which is likely to be forced on the Chancellor in the end, not least because of the lack of growth, represents some sort of policy upheaval. For markets, much like politicians, perception can be more important than reality.
What Messrs Osborne and Balls do not want to admit publicly is that the notorious Plan B is not a radically different prescription for the British economy, but simply Plan A with less ambitious targets. It's effectively what the OECD called for yesterday, in fact.
As he continues to paint himself into a corner, the Chancellor will find it ever harder to shift to Plan B. But if that shift is eventually forthcoming, we shouldn't let Mr Balls claim it as some sort of triumph. And nor should the markets take it as an admission of defeat.Reuse content