Rarely can a Budget have disintegrated so quickly. Dixons have just announced sales falling by 11% over the last 11 weeks, and are now cutting capital expenditure by 25%. Oddbins goes bankrupt. The former Asda boss has predicted a “long-term trend of trading down”. HMV has just issued its thrid profits warning in 3 months: annual profits are now expected to be less than half of what the City was expecting only 6 months ago. M&S have announced its clothing and homeware sales have declined 6% in the fist 3 months of this year. Thomas Cook, H Samuel, Ernest Jones, Argos, Comet, Mothercare all report sales and profits tumbling. This collapse of consumer confidence is everywhere, as all the economic reports are echoing.
The NIESR reports average quarterly growth in the British economy of a mere 0.1% over the last 6 months. Whilst industrial output rebounded strongly from the December winter shutdown, it did little more than recover output lost in the final weeks of 2010. The Office of National Statistics is now reporting that British industrial output dropped by 1.2% in February and manufacturing output was flat, contrary to City expectations of a 0.6% rise.
The Bank of England has reported that mortgage defaults have jumped, house sales are down, and small businesses are increasingly defaulting on their secured loans. The NOP consumer confidence index reports the biggest drop for 20 years, adding (are you listening, George Osborne?) that “this month’s figures show how badly some form of stimulus is needed”. Markit’s latest Household Finance Index has just indicated the steepest monthly deterioration for the last 2 years, with a third of households reporting that their finances had become worse since February. And all this was before the austerity measures start to hit this month.
So where is the growth going to come from when employment is falling, real wages are falling, inflation is rising, taxes are rising, and benefits are being sharply cut? It is almost unbelievable, but true, that Osborne expects/hopes/pleads for growth to come from a huge leap in household borrowing. Whilst people’s debt-to-income ratio did fall between 2007-10, the OBR now expects it to hit an all-time high.
The country is being put through purgatory to reduce the public deficit, currently $146bn, to nil in 5 years. At the same time the OBR has forecast that private borrowing will rise over the same period from its present vastly inflated level of £1.56 trillion to no less than £2.13 trillion by 2015. That is a staggering increase in private borrowing of £570bn during a 5 year period of unprecedented austerity. It is infamous that any government should pin its hopes of economic revival on such a debt explosion which can only precipitate another, even bigger, financial crash. So why is Osborne sinking to this level? It’s because unless he magics growth out of thin air from the only source left, his whole policy collapses. And because the public are highly unlikely to oblige, that is exactly where he’s heading, dragging down Britain with him.