Double boost for Osborne as business backs axe-wielding

Business leaders speak out in favour of cuts - and the ITEM Club plays down the chances of a CSR-related double-dip.

by James Taylor
Last Updated: 19 Aug 2013
With just two days to go until the Comprehensive Spending Review, and the speech that could dictate the political and business landscape in the UK for years to come, we imagine George Osborne’s palms are probably a bit sweaty at the moment. But two things today will have made feel him a bit better. A group of high-profile business leaders have sent a letter to the Telegraph insisting that the Chancellor shouldn't water down his planned cuts. And the Ernst & Young ITEM Club, a well-regarded forecasting body, says the economy is set for nothing more than a winter slowdown, as opposed to a double-dip. In fact, it reckons things may actually pick up after Wednesday...

The ITEM Club's forecasts will go down particularly well with the Treasury, since they're a bit better than the current consensus: the group is now predicting growth of 1.4% this year, 2.2% next year, and 2.9% in 2012 and 2013 - an upgrade on its previous assessment three months ago. It does think the economy will slow slightly over the winter, and admits that times are going to be tough for the average UK household until at least the back end of 2011. But it reckons the prospects of a recession have been 'exaggerated'; we're far more likely to have a 'soft patch' than a double-dip, it says. Better still for Osborne, the ITEM Club reckons business confidence will actually improve after the CSR - because it will remove the biggest uncertainty on the economic horizon.

More encouragement for the Chancellor comes in a letter to today's Telegraph, signed by such business luminaries as Kingfisher's Ian Cheshire, Towergate's Peter Cullum, Stefano Pessina from Alliance Boots, Mitie's Ruby McGregor-Smith and Sir Stuart Rose. They argue it would be a 'mistake' to water down the cuts by spreading them across two Parliamentary terms because of the extra debt service costs involved; whereas 'addressing the debt problem in a decisive way will improve business and consumer confidence'. What's more, there was no reason to think the shorter timetable would derail the recovery, since the private sector should be 'more than capable' of generating additional jobs to replace those lost in the public sector.

But will they actually put their money where their mouth is? The ITEM Club reckons the recovery will only happen if corporates 'step up to the plate' and start creating jobs; it suggests they're sitting on a cash surplus of more than £100bn, and they need to start spending this on expanding their labour force. Nice letters to the Telegraph are all very well; but as Osborne knows, the success of his policies will depend to a large extent on these CEOs - and others - investing in their workforce...

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