Tuesday, August 10, 2010

A new measure of spin.

No, not rpm, but the Mandelson, deployed by John Eatwell, Professor of Financial Policy at Cambridge University in his comprehensive destruction of the Tory economic narrative. At least I hope that it is spin. If Osborne and Cameron actually believe their statements and aren't just spinning faster than Rumpelstiltskin on amphetamine, then they are even more dangerous than I first surmised.

Lord Eatwell makes a sound point about the assessment from the notionally independent Office of Budget Responsibility, highlighting forecasts that seem unreasonably optimistic, given the experience of history.

Private consumption is forecast to contribute only 1.1% of GDP growth over the next four years, compared with 1.9% in the relatively prosperous period 1999-2008. Even 1.1% is likely to be a generous estimate, as unemployment increases and real pay is cut. In its place, the OBR is forecasting that growing business investment will make a positive contribution of 1.1% to the growth of GDP, three times greater than it managed in the prosperous years. The contribution of investment in housing will be double that in the good times, and the contribution of net trade will be 1.1%, when it was negative in the earlier period.

It's difficult to believe, and the National Institute of Economic and Social Research doesn't believe it. In its July report, Prospects for the UK Economy, it finds that government spending cuts will reduce potential growth in every year from 2011 to 2015.


So how are we doing?

Retail sales grew by just 0.5% in July and while we may see some improvement in big ticket items in the run up to Christmas, January will be tough as the new VAT rate kicks in. We simply aren't seeing the short term boost expected. Even the internet has not been the powerhouse of growth to which we have become accustomed - the recent 20% growth levels have slipped back to 11%

RICS report falling house prices for the first time in twelve months - the ultimate big ticket item now facing the additional threat of higher rates for borrowing, despite record low central bank rates. Those appalling lefty chartered surveyors know where to place the blame, as one practice in the heart of socialist Shropshire puts it
The market is the worst it has ever been. The government's determination to balance the books has undermined confidence

A similarly left-wing surveyor in Lincoln adds
The large number of redundancies expected has had a negative impact on the market

You may recall that it was suggested that we might follow the example of Canada, with swingeing cuts being countered by massive boosts to exports. This should be helped by lower exchange rates for the pound, but as that environment looks to be coming to an end, it simply hasn't happened for us. Amazingly, the government may also be considering cuts to the organisation dedicated to helping exports and stunningly, although it has been three months since the election, we still don't have a Trade Minister to argue the corner.

Increasingly, it is looking like the spin is all we have. There's no policy to support it.

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