Now even Goldman Sachs tells Osborne to find a Plan B

Austerity under attack from across political spectrum after disastrous growth figures

George Osborne was urged last night to rethink his deficit-reduction programme by a chorus of economic experts from across the political spectrum as the UK teetered on the verge of a triple-dip recession.

Britain moved a step closer to losing its AAA credit rating with new figures revealing the economy did not grow at all over 2012 – prompting experts who had previously backed the Chancellor's austerity measures to urge a change of course. Yesterday's worse-than-expected GDP figures showed the British economy actually contracted by 0.3 per cent in the final quarter of last year.

Jim O'Neill, chairman of Goldman Sachs Asset Management, said the contraction showed that "policy has been on the wrong path" and that fiscal policy had been "tightened too much" by the Chancellor.

The Mayor of London, Boris Johnson, warned: "The hair shirt stuff, the Stafford Cripps agenda – that is not the way to get Britain motoring again."

Others from the world of finance echoed that view. "The more time that passes, the clearer it is that America's gradual and delayed approach to fiscal tightening is the right one," said Trevor Greetham of the investment group Fidelity. The chief economist of the accountancy firm KPMG, Andrew Smith, advised "there is little reason to think 2013 will turn out any better than 2012".

The Royal Bank of Scotland said the last four years had produced the worst economic performance since the 1830s, excluding post-war periods. "It's worse than the 1920s; it's worse than the Great Depression," said Stephen Boyle, head of group economics at the bank.

Mark Littlewood, of the Institute of Economic Affairs think-tank, generally sympathetic to the Chancellor, said: "These figures are clearly very disappointing. If the Government does indeed have a strategy for growth, it plainly isn't working."

Boris Johnson's newly appointed economic adviser, Dr Gerard Lyons, said that the "poor" figures showed the need for the Government to take remedial action "to boost demand".

There were signs of a growing debate inside the Coalition, too, about whether a change of course on the economy is needed. The Liberal Democrats will not call openly for a Plan B, but are increasingly worried about the prospect of a triple-dip. Cabinet ministers including Vince Cable, the Business Secretary, are pressing privately for a further boost to major building projects and for such pro-growth measures to be exempt from cuts during a new round of £10bn savings now being sought by Mr Osborne for 2015-16.

Lord Oakeshott, the Liberal Democrats' former Treasury spokesman, said: "The economy is as flat as a pancake. No growth means no progress in the Coalition's central purpose of reducing the deficit. We Liberal Democrats did not sign up to stagflation and a vicious circle of self-defeating cuts. It is time to challenge the Treasury orthodoxy that has learnt nothing since the 1930s."

Labour seized on Nick Clegg's admission yesterday that the Coalition had been wrong to cut the capital spending plans it inherited from Labour in 2010. Ed Balls, the shadow Chancellor, said: "These deeply disappointing figures expose just how dangerously complacent the Prime Minister was when he said last autumn that the 'good news will keep coming'."

Earlier this week the chief economist of the International Monetary Fund, Olivier Blanchard, said that the Government should slow the pace of its planned spending cuts in its March Budget, adopting the economic Plan B Mr Osborne has always resisted.

The GDP figures sent sterling to its lowest level against the euro for more than a year. The currency's woes were compounded by signs of recovery from the eurozone's banks, which are preparing to pay back a large chunk of the €1 trillion lifeline extended by the European Central Bank last year.

City of London analysts warned yesterday that the return of the UK to contraction meant Britain was more likely to be downgraded by the credit-rating agencies. "[These] numbers have greatly increased the risk of a new recession and a downgrading of the UK's AAA credit rating" said Chris Williamson, an economist at Markit.

All three of the main credit-rating agencies – Standard & Poor's, Moody's and Fitch – have put Britain on "negative outlook". The disruption to economic activity this month by heavy snowfall has prompted fears that the first quarter of 2013 could also show a contraction. This would meet the technical definition of a recession, and represent the UK's third in five years.

However, the Chancellor, speaking from Davos, again refused to slow the pace of public spending cuts yesterday. Mr Osborne said: "We can either run away from those problems or we can confront them and I am determined to confront them."

Start your day with The Independent, sign up for daily news emails
football This was Kane’s night, even if he played just a small part of it
travel Dreamland Margate, Britain’s oldest amusement park, is set to reopen
Founders James Brown and Tim Southwell with a mock-up of the first ever ‘Loaded’ magazine in 1994
Have you tried new the Independent Digital Edition apps?
ebooksA special investigation by Andy McSmith
Threlfall says: 'I am a guardian of the reality keys. I think I drive directors nuts'
voices The group has just unveiled a billion dollar plan to help nurse the British countryside back to health
The Westgate, a gay pub in the centre of Gloucester which played host to drag queens, has closed
  • Get to the point
2015 General Election

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Practice Accountant - Bournemouth - £38,000

£32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + Uncapped commission: SThree: Does earning a 6 figu...

Recruitment Genius: SEO Executive

£18000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: New Lift Sales Executive - Lift and Elevators

£35000 - £40000 per annum: Recruitment Genius: A challenging opportunity for a...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss