28 Apr 2015

GDP slowdown – so are economists right to be optimistic?

Labour must be rubbing its hands with glee. A week before the general election and in the very week when the Tories are stressing that the economy is safe in their hands, today’s figures point to a marked slowdown, the slowest rate of growth since the end of 2012, when there were fears we were falling back into recession.

For not only did the number miss expectations – the consensus was for a rate of growth of 0.5 per cent – it came in decidedly lower, at 0.3 per cent.

The Chancellor George Osborne, however, is using the poor figures to illustrate that now would be the worst possible time to change course.

In an interview, he told me: “Clearly we have reached a critical moment and today is a reminder that the recovery can’t be taken for granted, that the economy is on the ballot paper, and with instability rising abroad now would be the very worst time to vote for instability here at home. We should stick with the plan that’s delivering a brighter more secure future.”

Read more: Channel 4 News election live blog

But that’s where many would disagree. The much vaunted balanced economy that Mr Osborne has talked about since coming to power in 2010 has failed to materialise.

Looking a little more deeply into the figures, we see the much vaunted balanced economy that Mr Osborne has talked about since coming to power in 2010 has failed to materialise. Production, which includes manufacturing, was down 0.1 per cent in the first three months of this year. Whither the march of the makers Mr Osborne promised? The makers instead seem to be limping. And elsewhere, mining and oil and gas industries suffered a 2.1 per cent drop. Construction fell 1.6 per cent – although construction is notoriously volatile – and business services and finance was up but only by 0.1 per cent, versus growth of 1 percent on average over the last four quarters.

And the sector that’s left to pick up most of the slack is services – in other words you and me spending on restaurants, cinemas and retail. The thing that makes up three quarters of our economy. This was never supposed to be a consumer-led recovery but yet again it appears the consumer is being relied upon to save the day. Although this time round, growth in services also fell, down to a rate of 0.5 per cent.

And don’t forget the other failed promises. The deficit is down, but not by as much as the government said it would be. The aim was for a deficit of £37bn now, in fact it stands at £87bn. And borrowing, in this last financial year, is £50bn higher than they said it would be.

Read more: GDP figures well below expectations

You tell Mr Osborne that, in fact, you could look at these numbers and say the plan hasn’t worked. That the definition of instability is putting the Tories back in power, especially with another huge round of austerity to come and a referendum on Europe pending. But he’s defiant in his reply.

“I’m the person who’s been saying the job is not yet done in terms of repairing the economy… so I’m saying let’s continue the plan. Actually it’s our political opponents, Ed Miliband and the Scottish nationalists, saying abandon the plan, the job’s done, we can borrow more, spend a bit more, we can impose more taxes on businesses. I think today people will focus on that and say that’s absolutely the wrong choice for the United Kingdom at the moment.”

So how worried should we be? Well, despite the numbers appearing to go in the wrong direction, economists remain optimistic and most see this slowdown in the first quarter as a blip.

Business surveys from the likes of the CBI and the British Chamber of Commerce are all positive. And household incomes are growing, driven by a pick-up in wages for the first time in seven years. So the best guess is that things will start to improve from here. I say guess because if the past has taught us anything about predictions and the British economy, it’s that those predictions often prove to be wrong.

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