David Prosser: Thank heavens for government spending

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The Independent Online

Outlook Let us say this about the revised data published yesterday by the Office for National Statistics on the performance of the UK economy during the first quarter of the year: it rather nails the argument that government austerity is hastening the demise of the recovery. As it turns out, the only thing that has prevented a double-dip recession over the past six months has been higher government spending.

Actually, there is a footnote to that, for rising exports have been a source of growth, too, the data shows. But in terms of domestic growth, it has all come from the public sector.

That is not surprising. The Bank of England has kept interest rates at a record low because of its concerns that raising the cost of borrowing would further damage the recovery. But the reason it has felt able to stick with this policy is there has been no evidence that high inflation is feeding through into higher wage demands.

That's good news in terms of avoiding an inflationary spiral, but stagnant wages and rising inflation are not a recipe for higher consumer spending. Hence the slump in household consumption.

What happens next? Well, with public-spending restraint now having taken effect, we will not be able to rely on government during this quarter. Nor can exporters, even assuming growth continues, shoulder the weight of securing recovery alone – they account for too small a proportion of the economy.

Is there any reason to think consumer spending is set for an imminent recovery? Sadly, no – not without significant falls in inflation or joblessness, for example, or an improvement in earning power.

Public-spending cuts may not have hastened the recovery's demise so far, but they may be about to do so.