David Prosser: Storm clouds gather for Britain's faltering economic recovery


Outlook This really has not been the best of weeks for Britain's economy. Data suggesting that inflation remains stubbornly high was followed by the revelation that unemployment has now once again begun to creep higher. And yesterday's retail sales figures, suggesting that the resilience of consumers in recent months is now beginning to crack, were pretty miserable too. Even the CBI's update on the manufacturing sector, which looked more benign, included some unhappy-looking portents of trouble to come.

Policymakers such as Martin Weale, the new Monetary Policy Committee member who gave evidence to MPs this week, tend to paint a picture of an economy that is giving some very mixed signals. But while there is always the danger of talking ourselves into a double-dip recession, the picture is becoming less mixed by the day. All the indicators of recent weeks have been more downbeat. This is not to say a double dip is inevitable. But it is increasingly difficult to be confident that official forecasts for the performance of the economy in 2011 will be met.

The 2.3 per cent growth predicted by the Office of Budget Responsibility at the time of the emergency Budget three months ago, which was itself a downwards revision from the 2.6 per cent hoped for by Alistair Darling, the previous Chancellor, is a big ask. Indeed, institutions such as the International Monetary Fund, which have updated their forecasts for next year more recently, think it's too big, and predict lower figures.

Sluggish growth, even if recession is avoided, is a problem. It means higher unemployment (and therefore greater benefits expenditure) and lower tax returns. The Treasury will find it even more difficult to hit the ambitious targets the current Chancellor has set for bringing government borrowing under control. No wonder George Osborne is working on spending cuts that are based on the state of the public finances at the time of the Budget, even though borrowing since then has been lower than anticipated.

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