THIS week will be critical for the coalition’s economic policies, in terms of perceptions even if not in reality. Despite their tentative nature, Tuesday’s fourth-quarter GDP figures will take centre-stage in Westminster: if they come in as expected, the coalition will celebrate; if they are weak, Labour’s Ed Balls will have a field day trashing the government and demanding a new round of Keynesian pump-priming. Neither argument would be fair – but that is politics.
The consensus view is for growth of 0.4 per cent but snow-related disruption in December – an embarrassingly severe problem for a supposedly advanced economy – means that this figure could easier be lower. Frustratingly, this one-off chaos means that this week’s figures will be too distorted for anybody to be able to draw sensible conclusions from them.
Detailed predictions of Tuesday’s figures are useless: nobody knows what the ONS will put them at – especially given that these statistics are frequently revised later. But while as recently as two weeks ago, virtually all the data for the UK economy had been positive, denoting decent growth, this is no longer the case. Manufacturing is still booming but services slumped in December. Construction is slowing. The employment figures also suggest that after a strong rebound between February and October, the UK economy has slowed.
One reason why it is so hard to understand what is happening is the sloppy reporting of easily verifiable facts. I’m getting sick at the number of times people are claiming that “retailers suffered their worst December on record.” Had that been the case, sales would have collapsed by 99 per cent, dropping back to the level seen in the 1930s when supermarkets didn’t exist and people spent a few shillings a week. What actually happened is that the growth rate for parts of the industry was the worst in years – and there was no overall change in the volume of retail sales compared with December 2009. Volumes fell 0.8 per cent compared with November. Volumes in the three months to December was 0.4 per cent higher than a year ago.
There is also an exaggerated view of the public spending cuts to date. Central government current expenditure hit a record £53.8bn in November, up 10.7 per cent year on year, a huge increase. Public sector net debt rose from £846bn in October to £863.1bn in November. Every week, billions more are still being added to the national credit card.
The slowdown cannot have been caused by massive spending cuts when spending is still surging. Bizarrely, the coalition is failing to follow its own, OECD-inspired advice: that the best way to reduce a deficit is to ensure that three-quarters of the reduction comes from cuts and only a quarter from tax hikes. So far, all the tightening is coming from tax hikes, including Vat and April’s rise in national insurance.
The good news is that the average forecast is now for UK growth of 2 per cent in 2011; some snow affected spending might be transferred to January. The global boom is accelerating. The bad news is that the coalition is continuing to hammer private firms with more red tape and tax – and failing to follow its own policies on spending. The markets won’t panic about growth – but if they start to worry again about the deficit, we will be in real trouble.
Follow me on Twitter: @allisterheath