BUSINESS leaders, economists and politicians demanded a new economic strategy from the government yesterday, claiming its approach had been shown up as a failure after GDP nose-dived in the second quarter.
In yet another blow to beleaguered chancellor George Osborne, the Office for National Statistics released preliminary data that showed GDP down 0.7 per cent, well below the 0.2 per cent consensus estimate, meaning the UK is now in the longest double-dip recession for more than 50 years. The economy is 0.3 per cent smaller than when the chancellor took office, according to the stats.
The contraction makes it virtually impossible for GDP to grow in 2012 as a whole, barring an unlikely boom during the remainder of the year.
The news added to fears that Britain’s vaunted triple-A rating could be at risk. Sterling sunk to a two week low against the dollar after the data was released, down at $1.55 compared to recent highs well above $1.57. The pound was also down 0.8 per cent on the euro.
“We need a plan B now to get the economy moving again and radical reforms to set Britain on a new course for jobs, growth and long-term prosperity,” claimed shadow chancellor Ed Balls. In an interview with Channel 4 he went as far as suggesting a “grand coalition” of all three major parties might be the only way to marshal agreement and fix the economy.
Analysts and business groups agreed that Osborne’s policy had failed, and called for the government to make an about-turn. Many backed supply-side policies and a privately-financed building drive.
“New infrastructure projects financed by our low interest rates, proper relaxation of planning and employment red tape, and action to lower energy costs for manufacturers would all show Britain means business,” said Corin Taylor at the Institute of Directors.
“The four key measures it could take are a serious liberalisation of planning law; deregulation of labour markets; an end to the completely incoherent ‘green’ policies; and radical reform of the welfare state,” said the Institute of Economic Affairs’ Professor Philip Booth.
Meanwhile Tim Morgan at City broker Tullett Prebon said that government spending should be rebalanced toward investment, and away from consumption. Morgan said that if the government got involved in “shovel-ready” infrastructure projects straight away then it wouldn’t be necessary to change the overall position of the budget.
Tory MP Dominic Raab pointed out that public sector spending was still rising, meaning the problems should not be blamed on too much austerity. “We should be looking at further savings to deliver tax cuts for businesses, and cut the swathes of red-tape that deter employers from hiring...to return the economy to growth,” he argued.
But Liberal Democrat peer Lord Oakeshott claimed Osborne was a “work experience” chancellor and should stand down in favour of a team led by Vince Cable.
Douglas Carswell, an outspoken Tory MP, said: “This contraction is not a cyclical downturn but the inevitable upshot of a failed 40 year experiment with monetary manipulation. Handing out ‘candyfloss credit’ to all comers led to numerous bad investments that eventually had to come home to roost.”
John Cridland, CBI director-general, said: “When I talk to businesses on the ground, the overwhelming view is that the economy is flat rather than negative.”