Britain is set to fall to the bottom of the international economic growth table today when the latest data is published by the Office for National Statistics (ONS).
Downing Street yesterday prepared the ground for gloomy figures. The Prime Minister's official spokesman said the economic backdrop was "very, very challenging", pointing to the worries over the future of the eurozone, as well as instability in other parts of the world economy. The spokesman added: "We were under no illusion that this was not going to be a very tough year." Ministers also fear that deadlock in the US over how to reduce its massive debts will have a knock-on effect on Britain.
The news will be especially embarrassing for George Osborne, who in his March Budget said that the UK economy would grow by 1.7 per cent this year. That is now widely seen as unrealistic. A Treasury survey of independent economists found a figure of 1.3 per cent more likely – one of the feeblest recoveries in history.
The Chancellor is facing calls from Tory MPs and business chiefs to boost the economy by announcing a cut in the 50p top rate of tax. One Government source said the move would make "economic but not political sense" as it would be difficult to make the case for tax cuts for the well-off while austerity measures are biting lower down the income scale.
In a speech today, Vince Cable, the Business Secretary, will call for sweeping structural reform in the banking sector and increased competition to ensure a return to "sustainable, stable and affordable retail banking, essential for sustainable growth".
The pressure being placed by Mr Cable and Mr Osborne on the Bank of England to inject money into the economy in the hope of preventing a relapse into recession was condemned by the shadow chancellor, Ed Balls.
He told The Independent: "Vince Cable should put his energy into persuading the Chancellor to change course rather than lecturing the Bank of England on how to do its job. I am sure the Business Secretary does not need reminding that he must be careful not to compromise the Bank's independence. But the more fundamental point is that monetary policy alone will not get the recovery back on track after the zero growth we have seen in the last six months. Ministers should not be passing the buck to the Bank of England when it is the Government's policies that are to blame."
Economists expect the ONS to say that the economy expanded by about 0.2 per cent between April and June – with a significant risk that it may have contracted, pushing the UK back towards recession.
It follows growth of 0.5 per cent in the first quarter, itself largely making up for the lost output over the exceptionally cold winter, when GDP fell by 0.5 per cent. It will confirm the picture of an economy "flatlining" and falling well behind ministerial hopes.
The extra bank holiday for the royal wedding that prompted many to take an extended break in April provides some explanation for the data – but the underlying slowdown in the economy is real, analysts say.