It has been another difficult week for George Osborne. The pressure is inexorably rising to rethink the Government's fiscal strategy – to ease up on public spending cuts in the hope of giving the wan economy a much-needed shot in the arm. The Chancellor must hold his nerve a while yet, however.
First, on Tuesday morning, came tricky public borrowing figures. It is still just about possible for Mr Osborne to squeeze under his 2012-13 target, but the balance of probability is tilting ever more sharply against him. Later the same day, the Governor of the Bank of England warned that monetary policy cannot do all the heavy lifting. Sir Mervyn King did not suggest that the Government change its fiscal strategy; but he did press for further supply-side reforms to boost "disappointingly slow" growth. Hardly a ringing endorsement for the Government.
Just one day later, the International Monetary Fund revised downwards its growth forecasts for Britain for both this year and next. Even taking account of newly gloomy IMF predictions for both the eurozone and the global economy, the move makes it hard to argue that Britain is turning the corner. That the UK is still expected to grow faster than both France and Germany does little to mitigate the sting.
Most damaging of all was today's explicit recommendation from the IMF's chief economist that the Chancellor change course. Olivier Blanchard has said before that the Government might need to slacken its austerity programme, should the outlook deteriorate. But he went far further this week, specifically citing the March Budget as an opportunity to "take stock".
Fourth-quarter GDP statistics due this morning are unlikely to help much. Analysts expect, at best, the merest sliver of growth. More likely the economy is shrinking again. And with snow set to pull January's output, the Chancellor could yet have two consecutive quarters of contraction – and a triple-dip recession – to explain.
Mr Osborne is in an unenviable position, then, and his critics are making hay. But while it is easy to list evidence that the economy is languishing, and easy to make the case that government cuts are a drag on growth, it is more difficult to present a credible solution. Casual talk of less austerity means little without an explanation of where the extra money is to come from. And although the interest rate the state pays is, indeed, near its all-time low, a volte-face in economic policy cannot be expected to go unremarked by investors.
In fact, there are some glimmers of light. The latest labour market figures show employment at record levels. It is too soon to be jubilant – wages remain largely stagnant – but reports of the economy's demise are, at least, exaggerated. Meanwhile, efforts to entice private sector investment into large-scale infrastructure projects are taking (baby) steps forward.
The main problem is one of timing. Changing the model for infrastructure funding is no quick win. Similarly, such supply-side reforms as have been made are slow to bear fruit. There is, of course, more the Government can do – pressing ahead with planned infrastructure, upping incentives for business investment and putting an end to universal benefits for rich pensioners, to name but three. But all such measures take time to bear fruit. Meanwhile the Chancellor faces opprobrium.
The task will not get any easier as cuts to welfare and local authority budgets start to bite. Debt and deficit targets have already been re-jigged twice, and it may yet be necessary to do more. But – problematical though it is to argue for patience in such painful circumstances – the very real risks of changing course as yet still outweigh the theoretical benefits.