Weak growth figures to show economy in trouble


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Fresh doubts over the efficacy of the Government's economic medicine are expected be raised tomorrow after another gloomy set of figures underline Britain's frail recovery.

Labour is preparing to seize on the gross domestic product (GDP) figures as evidence that the Chancellor, George Osborne, has killed the recovery by cutting "too far, too fast" – notably by raising VAT to 20 per cent in January.

Further evidence of a faltering economy emerged in a ComRes survey of 165 business leaders for The Independent. Asked about growth in their own sector, 26 per cent said it was decreasing, only 22 per cent that it was increasing while 47 per cent said it was staying the same and 5 per cent replied "don't know".

Ministers are nervously awaiting the gross domestic product (GDP) growth figure for the second quarter of this year amid City forecasts that it will be lower than the 0.5 per cent recorded in the first quarter. Labour claims a 0.8 per cent growth figure is needed for the Government's strategy to be on track.

There are growing fears that Mr Osborne's drive to cut government borrowing will be blown off course by weak growth, as unemployment means bigger welfare bills and lower tax receipts. Ministers insist the system allows for such flexibility. But failure to hit borrowing targets would raise questions about whether the political pain of spending cuts had been worthwhile.

One Cabinet minister admitted: "It's an uphill struggle. No one is going to say we need a Plan B. That would be self-defeating. But we are going to have to look at a 'Plan A plus' to ensure that growth is real and sustained."

Yesterday ministers paved the way for poor figures by blaming sluggish growth on the crisis in the eurozone, the budget deadlock in the United States and rising oil prices.

Kenneth Clarke, the Justice Secretary, suggested Britain's economic problems could be the worst the country had faced for some 100 years. The former Chancellor told Sky News that the US debt row was the "next iceberg" coming up for the economy.

Vince Cable, the Business Secretary, said the row over whether to raise the US Government's debt ceiling was a more serious crisis than the problems in Europe's single currency. "The biggest threat to the world financial system comes from a few right-wing nutters in the American Congress rather than the eurozone," he said.

Mr Cable insisted the Government would not blame weak figures tomorrow on one-off factors such as the Royal Wedding bank holiday.

Mr Osborne declared that the Government must stick to its plan to cut the deficit, warning that the alternative would be "sky-high interest rates, bail-outs and a loss of sovereignty."

Writing in the Sunday Telegraph, he conceded that economic recovery might take longer than he originally expected. "Recovering from such a crisis was always going to be hard; the instability in Europe, coupled with the huge rise in the oil price, has made a hard task a bit harder... We have to go for growth." He admitted that more pro-growth measures would be needed.

Ed Balls, the shadow Chancellor, blamed the predicted poor figures on decisions taken at home rather than abroad. "We are making the mistake, even though we don't have to, of undermining growth," he said. "We've got the fastest cuts in any country other than Greece in all the world, and the fact is it's not working."

Renewing Labour's call for a temporary cut in VAT, Mr Balls said: "The reckless thing to do was to accelerate the pace of deficit reduction; the very reckless thing to do was to introduce this VAT in January."

Peter Bone, a Tory MP, said Mr Cable's "right-wing nutters" comment had been insensitive and showed how out of touch he was. "They have a different system in America, where governments cannot spend what they like," he said.

'Buying a house is just not an option'

Michael Wager, 27, a credit controller from Gloucester, has a salary of £15,000.

"I am not any better off than I was two years ago. There is nothing specific that has changed and that is part of the problem – I haven't had a pay rise since the last election.

"They tell us we are all in it together and people are trying to spend less and be more conservative with expenditure but it just makes you worse off.

"I have had to put some big life decisions off to an extent. My partner and I are moving in together, which will help us save money. We would like to be buying a house but it is just not a viable option. With the deposit you have to get together now, it is just not feasible.

"We will just have to keep renting and the longer you are renting the more money you are throwing away. I am still undecided about who I would vote for. Ed Miliband has been scoring some points but [anyone] could score points against the Conservatives at the moment."