If George Osborne was in good spirits this morning as he polished off a plate of egg and soldiers from these Olympic eggcups, the news that the UK’s economic output fell by 0.7% in Q2 (as MT predicted) will surely have put him in a bad mood. The drop is much larger than analysts were expecting and is the third consecutive quarter in which the UK’s GDP has fallen. Ouch.
The Office for National Statistics (ONS) said that the construction sector was the main cause of such a sharp slowdown – the sector shrank 5.2% in the quarter – but there were also other factors at play. The Diamond Jubilee public holiday pulled millions out of work for a day, meaning a fortune in trade was inevitably lost, and the country suffered the wettest June on record, keeping consumers off the high street. All things considered, Q2 has put a horrific dampener on the economy.
Has the fall in GDP been caused by slowed investment in public sector construction projects? No doubt this will be fiercely debated at Prime Minister’s Questions this lunchtime. But one thing’s for sure: the austerity argument is going to take some defending. It is now probable that the UK economy will experience no growth whatever in 2012, a fact that British business (and the general public) will find pretty hard to swallow.
In a statement shortly after the results were published, the chancellor said: ‘We're dealing with our debts at home and the debt crisis abroad. We've made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs.’ To be fair, the government has just announced the Funding for Lending Scheme (FLS) which will give banks access to cheap cash as long as they lend it freely, a credit easing scheme, quantitative easing and even this morning, announced a new intercity trains contract creating 900 jobs.
With austerity starting to look like the dodgy option because of pan-Europe job losses, when is Osborne going to open the growth taps? Almost half way through the parliamentary term, he is running out of ways to persuade people that his economic policy is right: even the CBI and British Chambers of Commerce are starting to grumble…