Britain stares into the abyss again as household confidence plummets

PM will seek to reassure the CBI conference today as economists predict double dip and house-price fall. Sean O'Grady reports
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The Independent Online

Britain faces a relapse into recession, official figures are expected to suggest this week, as the latest survey of household confidence also points to a property market poised to "lurch downwards".

The Office for National Statistics is due to release data on growth for the third quarter on Tuesday – and it will show a sharp slowdown in the pace of recovery seen earlier in the year.

Some economists believe that Britain could suffer the much-feared "double dip" next year and, even if the economy doesn't shrink again, any path back to economic normality seems certain to be protracted and painfully slow.

At the CBI Conference of business leaders today, the Prime Minister David Cameron, theDeputy Prime Minister Nick Clegg and the Business Secretary Vince Cable, will defend the Government's austerity programme.

Mr Cameron will try to reassure the executives that the Coalition has a strategy to avoid a double dip. He is expected to say: "There is one question I want to answer today: where is the growth going to come from – where are the jobs going to come from?"

The ONS figure for the third-quarter growth will show that the economy expanded by just 0.4 per cent, compared with the bullish 1.2 per cent recorded over April to June, according to a Reuters poll of forecasters.

Most measures of consumer sentiment and economic activity slowed sharply after the emergency Budget on 22 June, as did the housing market. The lead-up to the cuts unveiled last week will have had a similarly depressing effect.

A two-thirds reduction in the pace of growth is likely to concentrate minds ahead of the Bank of England Monetary Policy Committee's next move on 4 November, next Thursday. Many expect it to announce another round of "quantitative easing" – directly injecting money into the economy and keeping interest rates ultra-low. A further £50bn, on top of the £200bn so far administered, could be announced next week. The Governor, Mervyn King, has hinted that he is ready to follow this course. He is due to speak again today.

Whatever economic effect the cuts and job losses will have, simply the promise of the £81bn annual reduction in public spending, the harsh ministerial rhetoric and gloomy media coverage is already damaging household confidence, weakening investment intentions and depressing the economy.

Market research group Markit says in a poll today that sliding house prices and collapsing confidence have sent expectations for the property market back to the levels of last year. Markit reports a "sharp deterioration in household finances".

Lower incomes and higher debt are "creating anxiety over future finances", with spending falling at its fastest rate for nine months. Anxiety about unemployment is reinforcing the downward trends in the property market, they say, and housing market sentiment is "lurching downwards" as price expectations slump to a 17-month low. The prospect of savage cuts to public spending is reinforcing a weak housing market and an uncertain international outlook, a vicious, self-fulfilling deflationary cycle.

Such stagnation or minimal recovery will not generate sufficient jobs to compensate for the nearly one million that will be lost as the cuts bite deeper. It also suggests that the Government's plans for deficit reduction may need to be revisited if the deficit grows wider as a result of the slowdown, with lower tax revenues and a higher bill for unemployment benefits bloating public borrowing. The Bank of England is increasingly being seen as the custodian of "Plan B", in preference to the Chancellor, George Osborne, having to reverse some of the spending cuts or raising taxes even more.

Nonetheless, some economists believe that Mr Osborne will have to change course. The Institute for Fiscal Studies said this week that "significant risks remain" to the Treasury's plans, and the Office for Budget Responsibility put the chances of success at no better than 60 per cent.

Howard Archer, the chief economist at Global Insight, said yesterday: "Our forecasts suggest that the Government will struggle to achieve its fiscal targets unless further corrective action is eventually taken."

Mr Osborne was accused by Britain's new Nobel Prize-winning economist of having "exaggerated" the risk of a Greek-style debt crisis. Professor Christopher Pissarides said that the prospect of a sovereign debt crisis hitting Britain – used by the Chancellor to justify his spending cuts – was "minimal". He warned that Mr Osborne's swingeing cuts package was taking "unnecessary risks" with the economy.

Today David Cameron is expected to emphasise two elements of the Government's approach to creating what he says will be "a new economic dynamism". One is the decision to invest £200m in technology and innovation centres that will help connect businesses to new technologies.

The other is to make the competition rules more "streamlined", following the decision to merge the Office of Fair Trading and the Competition Commission. He is expected to say: "We want to reduce the uncertainty and the length of time it takes to make a decision in the current system. Above all, we want to help new companies break into existing markets. When we say we're going to build a new economic dynamism – we mean it."

Ed Miliband will be making his first major address to an outside body since being elected leader of the Labour Party. He is expected to warn that government should intervene "to provide support to business".

The CBI will also hear from the new Barclays chief executive Bob Diamond, who has earned nearly £100m from his time at the bank and could add more than £11m during the first year in his new position.

Living under the threat of housing cuts

Charities have warned that the poorest, most vulnerable people could be forced to live in "Dickensian conditions" of overcrowded and substandard accommod-ation as housing benefit cuts force them out of their homes and into poorer areas, writes Sarah Cassidy. Research for the homelessness charity Shelter estimates that 134,000 households will be forced to move when the cuts come in next year. London will bear the brunt of the cuts, with families squeezed out of the more expensive inner-city boroughs into cheaper suburbs. The trend could also be seen in such cities and towns as Birmingham, Durham, Cambridge, Manchester, Liverpool, Brighton and Bristol. In his June Budget, the Chancellor imposed caps on housing benefit of £400 a week for a four-bedroom property, and £250 a week for a two-bedroom home.

Patricia Wright, Grimsby

"Last winter, it got so cold but I couldn't afford to heat the house. I don't want to go back to sitting on that sofa wrapped in a blanket, but this winter I don't think I'll dare put the heating on; I'm just so scared I won't be able to pay the bill," says Patricia Wright, a 61-year-old pensioner from Grimsby. Mrs Wright rents a three-bedroom house from a private landlord for £105 a week. She receives housing benefit of £70 a week and has struggled to find the remaining £35 from her pension of £130 a week (the state pension of £55 a week topped up by pension credit). "I am still paying off my gas bill from last winter," she says. "My winter fuel payment will go straight into that."

Bianca Geraghty, London

Bianca and her 19-year-old daughter moved into a 2-bedroom flat in North Finchley, north London, in March after being forced to leave their flat in Haringey after an arson attack.

She said: "I recently received a letter from Barnet Council to say that I would have to pay £70.00 towards rent and Council tax. I cannot do that because I am on incapacity benefit and only receive £180.00 a fortnight. I also receive £56.00 in child tax credit but that will stop in November and child benefit stopped last month now my daughter is 19. She is in part-time education and does three courses over three nights. It involves a lot of travelling expenses.

I have asked Barnet council if they can still pay, pleading with them because I cannot afford it. Private landlords have been milking the housing benefit system. The governement should focus on fair rents instead. My current two-bed flat is £920.00 a month and will not leave much even after I go back to work. For now I am waiting to hear back from Barnet because I cannot afford to move again."

Terry Lane, London

Terry and his family – wife Teresa and son Joshua – say they are prime example of "ordinary working people" being forced out of wealthy parts of London into the suburbs. But the family cannot even afford to live there and may be pushed out even further, says Mr Lane.

But Terry and Teresa Lane lost their home in Westminster after running up nearly £20,000 in rent arrears because their housing benefit did not cover the full cost of their rent.

The family had waited for seven years for a council house but there were none available. Instead Terry, Teresa, their son Joshua, now 22, and daughter Graciela, now 23, were temporarily housed and spent the last four years in a three-bedroom, ex-council flat owned by a private landlord. They were charged £1,580 a month and received around £900 in housing benefit but struggled to find the rest.

Mr Lane earns around £18,500 as a document controller for an architects' firm, his wife earns around £5,000 as a teaching assistant. Joshua is an undergraduate at a London university while Graciela left home because of the stress.

The family then moved out to Hendon, in the borough of Barnet, renting a 2-bedroom flat for £1,018 a month. They receive £50.22 a week in housing benefit but are already struggling to make up the shortfall.

"Hendon is cheaper compared to Westminster but now we have travel expenses. The problem is that there is no affordable housing out there. The rents charged by private landlords can be astronomical. Many housing agencies will not touch anyone claiming housing benefit so there are a very limited number of properties available.

"I think next year will be the crunch point when the cuts to housing benefit kick in.

"What is needed is more affordable homes for people who are working."