Leading article: The economic gamble looks ever more reckless

Thursday 28 April 2011 00:00
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It is not a double dip, but the outcome is scarcely much better. The Office for National Statistics figures released yesterday show that the UK economy grew by 0.5 per cent over the first three months of 2011. That means the economy has recovered the 0.5 per cent output lost in the final quarter of 2010. But overall output over the past six months is as flat as a pancake. And just as the disruption caused by poor weather late last year artificially depressed the previous quarter's figures, so does the snow flatter these latest results. The 0.5 per cent growth is likely to contain a great deal of economic activity displaced from late 2010. Without that bounce-back effect, yesterday's figures would in all likelihood have been still more disappointing.

This makes George Osborne's welcome yesterday for the "good news" look bizarre. At best, the economy is stagnant. At worst, it could actually be contracting. What is clear is that the economy is underperforming the official growth forecasts of the Office for Budget Responsibility. Last June, at the time of the Chancellor's emergency Budget, the OBR forecast growth over this six-month period of 1.1 per cent. Last November, at the time of the Spending Review, it revised this forecast down to 0.8 per cent. At the time of this year's Budget, the OBR revised its prediction down still further to 0.2 per cent. And yet, despite two dramatic downward revisions, growth has still come in below the OBR forecast. This is significant because Mr Osborne has repeatedly cited the OBR's predictions of growth to deflect criticism from those who argue that his aggressive deficit reduction programme represents a reckless gamble.

All this leaves Britain in an uncomfortable position. The economy is still weak a year and a half after the recession ended. Unlike in the US, UK output has still not recovered to pre-recession levels. Unemployment is still high. And the Chancellor is about to subject Britain to the most severe and rapid fiscal consolidation since 1945. Yet Mr Osborne says yesterday's results show that the UK economy is "on the right track". Not for the first time, that appears to be a statement based more on wishful thinking than evidence.

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