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Cause for concern and cause for celebration
Posted by Adam White (@theday2day)
Wednesday, 27th January 2010
Figures released yesterday by the Office of National Statistics show that Britain is finally out of the deepest recession since the 1930's after 6 quarters of contraction. The numbers tell us that the economy grew by 0.01% in the fourth quarter of 2009, slightly less than the 0.04% that was expected. Chancellor Alistair Darling was no doubt pleased by these figures as it proved his estimates, announced around the time of the pre-budget report, that the economy would return to growth by the end of the year were right.
This is good news for the Government and Party activists, who can now start focusing on economic improvements as a part of the election campaign. But there are other glimmers of hope that should resound well with voters. Last week we saw a small decrease in unemployment, with the figures for the 2009 and budget being 450,000 below estimates! There are also positive signs in revenue increases, mainly from corporation tax, which has shown a second consecutive monthly increase. It also seems like the forecasts for the budget deficit are not as bad as first imagined, as borrowing in the last quarter increased slower than expected.
The Prime Minister will almost certainly be using this to his benefit at Prime Ministers Questions today, citing his willingness to use fiscal stimulus and continued spending to shore up the economy, as opposed to the Tories, who's grand master plan was to leave the recovery to the market. They proved their commitment to this laissez faire approach when they opposed the capitalisation of Northern Rock. If they were in power to make that decision then thousands would have lost their savings and the housing market would have sunk even further.
But, as one Treasury spokesman said upon release of the figures yesterday, we should be "cautious about the prospects for the economy". For instance take the unemployment figures; during the same quarter as the decrease in unemployment there was an increase, of 99,000, in the number of people in part time work. Most of this is down to involuntary reductions in working hours, a step that is taken to avoid redundancy. The risk here is that this trend continues and disposable incomes start decreasing, meaning less money being spent on the high street, never a useful factor when trying to boost growth.
The other figure most of the headlines left out of the picture was the extra 79,000 people now classed as "economically inactive", people who have given up in looking for work at all or have decided to take an early retirement. This group has now reached a record high 8.05 million people, which works out as slightly over 1 in every 5 people of working age.
As TUC General Secretary Brendan Barber pointed out this morning, "the threat of a double dip recession is looming large". Indeed, we have barely returned to growth, falling back into decline is not unimaginable and if factors Ive already mentioned, such as a combination of decreased disposable incomes/low spending, continue to increase then it could be just the thing needed to tip us back over the edge.
So there is cause for concern but also cause for celebration. There is little doubt that these reports would be much worse without the fiscal stimulus, employer incentives and quantitative easing, which have helped increase demand and (not quite as successfully) limit unemployment. David Cameron's calls to start slashing the budget only serve to undermine this fragile scenario. If he were to get his way and cut 1 million jobs from the Public Sector then the consequences would be unthinkable. It is initiatives such as Backing Young Britain, which will now guarantee employment for those under 25 who've been unemployed for 6 months, that will get Britain working again! Along with investing money into affordable housing projects in order to give the construction industry the boost it needs, we can produce results and destroy the Conservative myth that Government is the problem not the answer.
For now, I'm afraid, the waiting game is still in play. The Government needs to keep investing, concentrate on programmes that will get people back into full time work and ensure that any efforts to decrease the budget deficit don't harm essential Public Services. In the meantime we can start taking these signs of improvement to the electorate, we can highlight the difference in benefits between Labour action and Tory inaction. Together with a vision for the future, on green jobs, better industry and financial reform we can proudly say, that this fight isn't over yet!
