George Osborne was quick to dismiss the dire GDP figures as a side effect of the extreme weather conditions, but most considered that the ONS data, and the 0.5% fall in the UK’s last quarter GDP contained a message of substance. For those of us who have grave reservations about the present course of austerity, it has been interesting to observe the austerity hard-liners softening, or being reigned-in – if only a touch.
First we had Michael Portillo – no longer at the heart of government, but his happy position is surely maintained by not straying too far from the party line. On ‘This Week’ he was clear that if the economy was genuinely going into reverse, then the strategy would change. “Of course there is a plan B”,he said, referring to the pre-Christmas announcement by the Financial Times that Sir Gus O’Donnell the Cabinet Secreatary was exploring options beyond austerity.
Then Stephanie Flanders, often seemingly an extension of the Government’s economic strategy pres office, reported a converstion with John Lipsky, the number two at the International Monetary Fund. While Lipsky “didn’t want to jump to any conclusions about the GDP data”, he did “seem to think it would be natural to adjust the fiscal strategy, if growth in 2011 appeared to be a lot weaker than previously thought”. Flanders gave the direct quote:
“The programme for this year and next year was deemed consistent with moderate growth. If those forecasts prove to be too optimistic, I’m sure there will be grounds to think about adjustments.” (I asked, does that mean adjustments to fiscal policy?) ……”It seems to me anybody would be willing to re-consider and make adjustments if there was a need and the outlook was substantially different from what was anticipated.”
Stephanie dutifully distanced the Chancellor from any such position, but the point is that even three months ago commentators gave no airtime to those opposing austerity.
Then it was the turn of the National Institute of Economic and Social Research. With Martin Weale now on the Bank of England’s Monetary Policy Committee…(spending more time with his fellow inflation hawk, Andrew ‘death’ Sentence,) the arrival of a new director, Jonathan Portes (son of our old friend Richard …see my earlier blogs on Richard Portes’s unhelpful role in Iceland ); all this seems to mark a change in policy stance.
In issuing a new forecast for the UK economy on Monday, NIESR looked to a delay in fiscal consolidation:
“It is likely we will have to face the political reality that some cuts are just not possible in the timetable set out by the government, but ministers should relax and rather than go looking for other things to cut, just let the process take a little longer …. There is no point dashing about in a hair shirt in the snow, it’s only going to make matters worse”.
Few orthodox or academic economists had the courage to oppose the Tory-led government’s charge towards the cliffs of austerity. No-one proposed that the brakes be applied….that any austerity plans should be contingent on the direction the economy is taking.
Yet now, as we approach the cliffs, they are falling like ninepins (with the honourable exception of the hard-hearted Institute of Fiscal Studies, which we are re-assured remains unwavering in its support of Chancellor Osborne.)