Fortunately U-turns are a favourite ploy of Cameronian government, courtesy of the NHS reforms, criminal justice discounts, forest sell-offs, housing benefit cuts, Libyan interventionism, and maybe soon public sector pensions. That’s lucky because one is soon going to be needed over Osborne’s decrepit policy on growth – or rather non-growth.
The economy having flat-lined over the last two quarters, where is growth supposed to be coming from over the next year? Consumers, terrified about their future prospects, are trying to cut spending and pay down debts wherever they can. Rising commodity prices have pushed up inflation, made worse by the recent slippage in the value of the pound and by higher VAT, a Government own goal. And the banks, scorched by the financial crash they caused by reckless borrowing, are now much more cautious about lending to business or householders and charging much higher interest.
So where is the growth which should have been produced by 0.5% interest rates for the last 2 years plus £200bn worth of printing money (quantitative easing)? That should certainly have got the housing market going again, yet 2010-11 has seen the lowest number of annual houses built since 1923. In fact, with consumers desperate to pay down their mortgages and banks reluctant to lend, mortgage approvals have dived to half the pre-crash levels of 2006-7. Since High Street spending has also been squeezed, the extraordinary situation has developed where corporate investors are sitting on an unprecedented £650bn in cash and bank deposits, yet are unwilling to invest because they see no demand for any extra products or services they might generate.
That leaves just two options. One is that households may still increase their indebtedness and hold up overall demand in order to contain any further drop in their standard of living. That appears to be what the Government is hoping with the OBR forecasting that private sector debt will rise dramatically to no less than £2.13 trillion by 2015, a jump to 148% of total national income! The figures of de-leveraging (reducing debt) throughout the economy indicate, unsurprisingly, that the opposite is happening and is likely to continue.
That leaves exports. They have been helped by sterling’s weakness, but not by much. The problem here is that all Britain’s major export markets are in trouble. The US is suffering from markedly high unemployment which is not coming down, plus an excessively weak housing market. China after years of breakneck growth is being forced to tighten monetary policy leading to slower growth. And the EU is transfixed by the Eurozone crisis and the early likelihood of a Greek default, an existential crisis with even wider implications in international financial markets.
So if anyone’s got any ideas to kickstart the UK’s anaemic growth and exit from the approaching prolonged stagnation, Osborne sure would welcome a call. Otherwise prepare for the next U-turn.
