'Standard & Poor’s is just following events, not shaping them.' Photograph: Stan Honda/AFP/Getty Images

Image: acknowledgements to the BBC.

The Autumn Statement reveals but one thing: the Chancellor and his advisers are both ill-advised and dangerously ill-prepared for the forthcoming prolonged Depression. (And if you think I exaggerate, let me remind you that 20 years after the Japanese debt bubble burst, Tokyo house prices are still falling, and the stock market is worth 60% less than 20 years ago. And the Japanese economy was in a healthier state then, than the UK is today, thanks to an export surplus.)

Today’s penalising of the innocent – public sector workers, pensioners and those hundreds of thousands of young people entering the labour market  - is a result of a deeply flawed economic analysis by the Chancellor of the causes of the global financial crisis.

No depression will be averted;  no government borrowing will be reduced; no economic recovery can be hoped for, until the cause of the crisis is correctly analysed and then addressed with appropriate policies.

For me an interesting angle on the day was the difference in emphasis between the official Treasury Autumn Statement, and the Chancellor’s speech. The latter was far more ideological of course; but the Treasury Statement does indicate some grasp of the scale of the crisis. The very first paragraph of the full Statement (on page 11) reads:

“The UK economy is recovering from the biggest financial crisis in generations. Prior to the crisis, underlying competitiveness fell and economic growth was driven by unsustainable levels of debt, with the UK seeing the greatest expansion in debt of all the world’s major economies over the last decade. As a result, the UK experienced the deepest recession of any major economy except Japan and the Government inherited a budget deficit forecast to be the largest in the G20.” (My emphasis.)

So the Treasury does get it. The country that enthusiastically hosts the biggest global banks in the world; that celebrates “London ..as the world’s pre-eminent financial centre” (to quote the Chancellor today) witnessed “the greatest expansion in debt of all the world’s major economies over the last decade” – and as a consequence, the public finances worsened.

From these simple facts much analysis flows.

The most important is this: Britain (and the Eurozone) are not facing a sovereign debt crisis. We are not facing a crisis of the public finances. Instead: we are facing the biggest ever crisis of the private financial system.

Why? Because the “greatest expansion in debt of all the world’s economies” is not going to be paid back.

“The greatest expansion of debt in all the world’s economies” must first be written off, ‘de-leveraged’ or paid down.

As this process grinds relentlessly forward, the banks that lent “the greatest expansion of debt in all the world’s economies” face bankruptcy – if not now, in the near future.

That is the crisis we all face. The bankruptcy of the global private banking system - based in our backyard.

The mobilising of finance for the Eurozone is to bail out private banks that engaged “in the greatest expansion of debt.”  Although you would not believe this from media reporting, its purpose is not to bail out sovereign governments. The stubborn refusal of German politicians (with whom I have some sympathy) to agree to further taxpayer-backed bailouts of the private finance sector means that private banks face imminent bankruptcy.

Which is the why the Polish Foreign Minister warns of an impending “crisis of apocalyptic proportions“.

Given this terrifying prospect, what do our Treasury mandarins and British Chancellor recommend?

First, that we make it easier for employers to sack people, and thereby increase unemployment and cut wages – making it harder for those employees to pay back debts.

Second that we cut public sector wages of those in employment – with which some of those private debts may have been paid back. Third, that we penalise future pensioners. For why? And fourth, that we try and rescue 200,000, but sacrifice hundreds of thousands more young people on the dustheap of unemployment. That policy alone will cut the nation’s income; income that could help the banks put balance sheets back in the black.

The Chancellor’s speech reminded me of the parent that knows his child is hiding behind the curtain, but instead looks under the sofa, inside the box, behind the dresser – everywhere except where the solution lies. A silly, but in his case, dangerous game.

The fact is that the solution does not lie with cuts in public spending; with austerity. We have had only eighteen months of synchronised austerity across Europe and already the British and world economy teeters on the brink.

The failure is not that austerity was not implemented; the failure is austerity.

Private money markets are not asking for deeper austerity. They are asking for a revival of economic activity. They are begging for governments to draw back from the policies that have caused output, investment and employment to fall off a cliff.

But that is hard for governments such as ours, gripped as they are by an antiquated and flawed economic orthodoxy. As David Graeber  explains so well in his book “Debt: the first five thousand years.” orthodox economists – believe it or not – do not understand the nature of money and credit. An unfortunate weakness for a profession majoring on the economy.

Nor can their jaundiced Scrooge-like minds accept that prosperity is caused by employment. Not by rich, ‘light-touch’ regulated bankers.

They find it hard to grasp that money/credit – that is not generated by savings, but begins life at the Bank of England – can provide a bridge to employment. But only if it is managed carefully, and not outsourced to the reckless greed, and fraudulent behaviour of bankers and their friends in government. (See today’s story about Hank Paulson’s “inside jobs” with Wall St.)

Orthodox economists like those in the Treasury and the Conservative party cannot grasp one simple but vital truth. Employment can generate the income needed to a) repay debt b) pay tax revenues to lower the budget deficit and c) restore both general prosperity and a sense of national well-being. All of which might be of some help to the private finance sector.

Instead our policy and decision-makers are playing petulant, disgracefully irresponsible games with all our futures. And missing the biggest crisis of all: the imminent bankruptcy of the private finance sector.

George Osborne was presumably aiming at himself and his friends, when he vowed “to speak truth to power and wealth” at the Tory party conference this week, but dare he speak economic truth to the rest of us? – simultaneously published on Left Foot Forward >

On the narrowest of bases, he might still claim he spoke “truth” to the weak and powerless when in the House of Commons debate on the economy on August 11th he made this challenge:

“Those who spent the whole of the past year telling us to follow the American example, with yet more fiscal stimulus, need to answer this simple question: why has the US economy grown more slowly than the UK economy so far this year?”

It was a ‘brave’ claim when he made it, and it’s looking even ‘braver’ – and more disingenuous – now.

Following very recent revisions to US and UK data on GDP for the first half of 2011, the position is as follows, broken down into different quarters:

UK growth:

Q1    +0.4%   (revised down from the previous +0.5)

Q2    +0.1%   (revised down from the previous +0.2)

Total: +0.5%

US growth:

Q1   +0.1%

Q2   +0.325% (revised up from 0.25%)

Total: +0.425%

So by the triumphant margin of 0.075%, taking the period in total isolation, Osborne just scrapes home. But this ignores the fact the UK quarter 1 figure of +0.4% followed the disastrous Q4 figure of -0.5%, compared to US Q4 growth of more than +0.5%.

Without this Q4 quirk, his tenuous case would collapse.

For when we compare the US and UK over the last three quarters (including Q4 2010), we find that the US grew by 1%, whilst the UK grew not at all. A difference of one per cent in favour of the US economy.

And over the 12 months to the end of June, i.e. the lifespan of the coalition government, the US rate of growth is likewise 1.0% greater than in the UK (US 1.6%, UK 0.6%).

Taking the last 18 months, we get the following medium-term picture:

US:

2010                        +3.0%

2011 first half         +0.4%

18 months               +3.4%

UK:

2010                        +1.4%

2011 first half         +0.5%

18 months               +1.9%

In other words, the US economy has grown by 1.0% more than the UK over the last 12 months, and 1.5% more over the last 18 months, to end June 2011.

The US has many problems, but it has applied some meaningful, if now fading, stimulus.

So if George Osborne really does wish to speak truth, to power and wealth, and to the rest of us, let him own up – it is simply not true the UK’s austerity-based economy has grown faster than the USA’s. On the contrary, coalition government policies have led us deeper and deeper into the mire of unemployment, bankruptcies and economic stagnation.

Published in the Guardian Cif alongside responses from Jonathon Freedland and Sheila Lawlor:

Ed Balls said sorry for Labour’s record on ultra-light-touch financial regulation, and that must be acknowledged.

But apologies are just not enough. He and Ed Miliband must stop attacking his electoral base, “hardworking families”, many of whom are trades unionists.

As Balls recognises, unless urgent action is taken, this may be the gravest economic crisis in history – given the global integration of finance and the growth of world population.

So Balls must go further.

First, he must declare loudly and forcefully that Labour will never again be captive to neoliberal central bankers like Alan Greenspan; or private bankers like Sir Fred Goodwin of RSB.

Labour must never again be seen to be in the pockets of the finance sector.

Balls and Miliband must give the Labour party back to its electoral base, to its members.

They must both distance themselves from Labour leaders that profit from links to the global finance sector.

Second, Balls must stop talking about the deficit; about “tough decisions on tax and spending” – the last thing the economy needs. It is private debt – 469% of British GDP and six times the public debt – that is the real crisis facing Britons. It is debt-deflation, and debt-deleveraging, and collapsing private investment that pose the gravest threat to us all.

Given this, there is an urgent need for government spending on environmentally sound projects to generate economic activity – jobs, the income, the savings that will help protect us from Armageddon.

Until he does, his apologies will count for nothing but special pleading.

Read the original article on Cif here >

While I was in Australia I recorded this interview with ABC’s daily show. This went out on 15th September. Watch it above or on ABC’s website here >

Read about my speaking tour of Australia below – from the SEARCH Foundation:

The SEARCH Foundation is currently touring eminent British economist and author Ann
Pettifor around Australia and she is visiting our shores with a warning; the GFC inducing credit
crunch is not over and Australia’s banking sector is vulnerable.

Ms Pettifor is visiting Adelaide, Sydney, Melbourne, Canberra and Brisbane for speaking
engagements over the next fortnight.

“Before the Credit Crunch of 2008-2009 Brits and Americans were convinced that the good
times could last forever. Our orthodox economists, central bankers and politicians encouraged
us in that delusion. Today millions of the unemployed, homeless and bankrupt are paying
a heavy price for the failure to understand the role of the private banking system in causing
systemic and widespread economic failure.” Ms Pettifor said.

“Australians would be well advised not to fall into the same trap.

“At the same time, the increased frequency of extreme weather events is challenging the
widespread delusion that there is no limit to the rate at which humanity can go on polluting the
atmosphere and looting the seas and wider ecosystem.

“Australians, who have suffered more from extreme weather events than we have in Britain
would do well to take the lead in warning the world of a widespread delusion: that there are no
limits to the rate at which we can consume and ‘grow’.

“Instead we all need to address the most urgent crises facing humanity: the continuing global
financial crisis (it never did end in 2008); the threat of peak oil; the threat of climate change;
and now the rising threat of food and water shortages. That is why we, at the New Economics
Foundation first proposed the Green New Deal in July, 2008.

“We argued then, and we argue now, that societies must first fix the out-of-control globalised
financial system. We must strip the Masters of the Universe of their mighty power – after all
they rely on the world’s taxpayers to guarantee their profits and bonuses, and to socialise their
losses.

“Only then can we put the domestic banking system to work to help finance the transformation
of the economy away from costly globalised finance on the one hand and dependence on
fossil fuels on the other. Instead, tight but low cost-finance, generated by our domestic banking
systems must be put at the service of the transformation of the economy.

“We need massive investment in sustainable, renewable sources of energy and in the
conservation of the ecosystem’s resources.

“The banking system must provide regulated, low-cost finance for that investment. Just as
the banking system of the late 1930s and 40s helped finance economic recovery from the ’29

Crash; and then the challenge societies faced in 1939: World War.

“Such a transformation – a Green New Deal – will require greater self-sufficiency, and the
localisation of economies as far as practicable. It will also require the training and recruitment
of a ‘carbon army’ of workers – skilled and unskilled – to turn every building into a power
station, and to make every building energy-efficient.

“But just as central bankers and politicians turned a blind eye to the looming credit-crunch of
2008, so now they are turning a blind eye to the financial and ecological threats facing society.

“For example, right now, Australia’s mining boom is masking the vulnerability of her banking
system – and the threats that both high levels of household debt, and instability in globalised
capital markets pose to Australian banks – and therefore to the economy.

“Despite Mr. Glenn Stevens’ sanguine approach to the stability of Australia’s banks in his
recent testimony to the Australian parliament, insurance against the risk of Australian banks
defaulting – credit default swaps – climbed nearly 50% over August. That means that investor
expectations of Australian banks’ defaulting are on the rise. In addition, the cost of raising
40% of Australian bank funding ($100 billion) in global capital markets has been rising as a
result of instability in the Eurozone and US.

“The rising cost of this integration of the Australian banking system in the globalised economy
invariably means that Australian banks – and the financing of the current account deficit – are
more vulnerable to the whims of global investors.

“And as a result of the falling confidence in global capital markets, interest rates on loans
to Australian businesses and households will rise too – at a time when their customers are
snapping purses shut; house prices are sliding as Australians slowly pay down very high levels
of debt; and mortgage costs have been ratcheted up by the RBA’s raising of base rates to the
highest in the developed world;

“No amount of iron ore is going to fix Australia’s financial system. Australia needs a Green
New Deal.”

For media interviews with Ann Pettifor whilst she is in Australia, please call Peter
Murphy on 0418 312 301.
’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’
Note to editors.
1. Ann Pettifor a fellow of the New Economics Foundation (nef) in London, UK, and director
of PRIME economics, is visiting Australia on a two-week tour, sponsored by the Search
Foundation.

Ms Pettifor first predicted a credit crunch in September, 2003 on launching a book she edited
and Palgrave Macmillan published: “The Real World Economic Outlook.” Later in October,
2006, Palgrave Macmillan published her book: “The Coming First World Debt Crisis”. Then in
a Times interview in 2009, she warned that “the worst of the slump is yet to come.”
2. In his recent evidence Mr Stevens of the Reserve Bank of Australia said: “Major Australian
banks report being offered substantial US dollar funding offshore on account of their relatively
high credit standing. In any event, their reliance on such wholesale funding is much reduced
from three years ago, with the large increase in deposit funding at home and slower balance
sheet growth.” And yet in May this year, Moody’s downgraded all four of Australia’s major
banks, as ABC reported at the time.

Markets react rationally to austerity

The piece below was posted on the “Left Foot Forward” website on Monday, 8th August, 2011

“It is important that we understand the events of last week not as a new outbreak of crisis, but as a continuation of the banking crisis that first came to the public’s attention in 2007-9.

It is now just four years since the ‘debtonation’ on 9 August, 2007, when banks lost confidence in the viability of other banks, and stopped lending to each other. After a year when the fuse of huge debts endured a ‘slow burn’, the 2008 Lehman bankruptcy exploded the financial system and threatened systemic failure.

Without consulting taxpayers, central bankers and politicians rushed to the aid of bankrupt financiers. Private losses were socialised, and attempts at recovery were nursed by central bankers who pushed interest rates down to very low levels.  Thanks to the weakness of politicians and central bankers this nationalisation of private losses was offered almost unconditionally to an immensely wealthy, and unaccountable elite.

Since then politicians and central bankers, the IMF, the ECB and the EU have left the finance sector free to engage in reckless lending and speculation. Instead of disciplining financiers, they have disciplined taxpayers, and used ‘austerity’ policies to force the broader economy to bow to the will of an extremely fragile finance sector.  The purpose of ‘austerity’ we have been told, by e.g. the ECB’s Mr Trichet is to shore up the public finances, and prepare for further stages in the financial crisis, when bankers need to be bailed out again.

Only it has not quite turned out that way.

Because the result of ‘austerity’ is now clear for all to see. Far from shoring up the public finances across western economies it has weakened public finances.  As economies have faltered, tax revenues have fallen and welfare payments have rocketed. This added to the immense liabilities of the bank bail-outs, has of course strained government deficits.

And because of the policy of austerity, the global economy is weakening. Economic activity and investment has not recovered since 2009. Unemployment and insolvencies in the EU are rising and consumers are snapping their purses shut. If the US now starts cutting back further on government investment, this will lead to a further weakening of the global economy. That much is now clear for all to see.

While their disastrous impact on economic activity and employment is felt across the US and the Eurozone, austerity policies impact first and most forcefully on the poorest, weakest economies: Ireland, Greece and Portugal.

As a result, they are the first to fail the challenge of meeting foreign debt repayment obligations. These debts are the consequence of unwise, if not reckless lending and borrowing that in some cases was fraudulent. The lenders were private banks in Germany, France and the UK.  The consequence of the threat of non-payment of loans is disastrous for these private banks. Why? Because many of them are effectively insolvent already, and any further damage to their balance sheets could cause shareholders and investors to lose confidence, and lead to bankruptcy.

Hence the panic in last week’s financial markets. Bankers can’t wait for EU leaders to consult with parliaments in September on the size of taxpayer resources that must now be poured into yet another taxpayer-backed bail-out fund for the wealthy – the European Financial Stability Facility. Their banks are too fragile. They are too close to bankruptcy.

So markets repeated the blackmail they applied on 29 September, 2009, when the US Congress appeared to baulk at providing the private banking system with $750 billion of taxpayer funds (TARP).They tried hard to frighten the hell out of EU politicians on holiday.

In the process millions of investors were hurt, and billions of pounds were wiped off the value of e.g. pension funds and other investments.

That – for you and me – is the bad news.

The good news is this. Something else happened last week. It gradually began to dawn on the British and European establishment that the so-called “recovery” – based as it is on financial speculation (in e.g. food and oil) and not investment in real, socially useful economic activity – is illusory.

Second, it dawned on our estimable leaders that the financial chaos created by liberalised, de-regulated finance has not been cleared up. Far from it. Despite all the hundreds of billions of dollars poured into the banking system – the private banking system is still close to insolvency.

Finally, and this is the most hopeful development: it finally dawned on at least the British establishment that “austerity” is not all it is cooked up to be. Of course we had warned of this, but ideologues in the Tea Party, the Coalition and the ECB prevailed over more rational arguments.

But now certain luminaries in our media are beginning to recognise that cuts in US government spending really will plunge the world back into recession, or even depression. Just as we at PRIME predicted. Cutting government spending at a time of financial fragility and economic weakness is unsound economics.

While recognition of this is a hopeful development, it is overshadowed by the influence of powerful bankers that persist in backing Tea Party ideologues: and who maintain their attacks on the taxpayer hand that has so sumptuously fed them.

Last week Bob Diamond, the head of Barclays, called for UK taxpayers to swallow more doses of the poisonous ‘austerity’. Stephen Hester of RBS flatly denied that banks faced “Armageddon” and instead blamed governments/taxpayers for the crisis.

It is time for our elected leaders to call the bankers’ bluff. It is possible, desirable even, to break loose from the cords that yoke the taxpayers of Britain and the rest of Europe to the interests of an immensely wealthy, greedy and stupid financial elite

So we call on our political leaders, to stand up to bankers. After all, dear leaders, you have only your chains to lose.

RBS chief executive Stephen Hester Source: Getty Images

Dear readers…This is my blog posted on the New Statesman website today, 7 August, 2011 – with one minor correction in the fourth sentence.

“Let’s get one thing clear: this is not a crisis of, or for governments. This is first and foremost a banking crisis.

EU governments do not need a fragile, reckless and immensely wealthy private banking sector. However, as the financial markets made clear last week, the fragile private banking sector urgently needs Eurozone  taxpayer largesse.

For more than thirty years of financial de-regulation, western taxpayers have shored up and guaranteed the immense wealth and reckless lending of private bankers and their shareholders. Without their sacrifices, many private, global banks would have been liquidated during the financial crises of the 90s and through 2008. Thanks to public largesse, private bankers, their shareholders and bondholders survived. Some even thrived as weak western politicians failed to demand ‘terms and conditions’ for bailouts.

Now private banks are once again faced by liquidation – because of reckless and costly lending to poor and economically weak Eurozone governments and banks. If their losses are not socialised, they and their shareholders are doomed.

And so bankers are doing what highway robbers have done throughout time: holding a proverbial gun to the heads of Eurozone politicians and central bankers, and demanding they hand over cash.

Politicians should call their bluff.

Two weeks ago, EU leaders promised to set up a 440 billion-euro fund (theEuropean Financial Stability Facility) that would, for example, help finance Greece’s repayments for expensive loans made by UK, French and German banks. But politicians were fuzzy about numbers, because they had to consult EU parliaments. Bankers, facing insolvency, cannot wait for wider consultation.

“Bailouts need a bigger bucket” roared the banker’s magazine Barrons. And, it appears, they need it now. The “bucket” is considered “wholly insufficient.” Trillions more Euros are needed to shift the burden of losses from the private to the public sectors.

And just in case holidaying politicians failed to get the point, financial markets swung into action, and last Thursday piled on the blackmail.

That is not of course, how bankers see it, or tell it. On Friday, Stephen Hester, chief executive of RBS, told Radio 4′s Today programme that “this is not a banking crisis.” Instead he argued this is a crisis of “confidence in governments.” Governments, he said, “need to give confidence to markets….that they will play their proper role in providing liquidity [my emphasis]. . . not to banks, but to governments, to enable funding to go normally….” He trailed off at this point, but I assume he had meant to add, “to enable funding to go normally to private bankers“. Yes, those same bankers that had lent recklessly in the first place.

The fact is this: private bankers need a Eurozone bailout. Eurozone taxpayers do not need private bankers. It is possible, desirable even, to break loose from the chains of financial injustice and untie the cords that yoke the taxpayers of Europe to the interests of a financial elite

We know, because it has been done before.

The last time the world threw off the yoke of private wealth was in the 1930s. In September 1931, Britain’s finance sector demanded high interest rates and austerity as the 1929 financial crisis hammered the very people innocent of its causes. At this point Britain, like Greece and Spain today, became defiant. The UK threw off its fetters and left the gold standard – the Euro of a century ago.

Under Keynes’s tutelage, Sterling was revived as a money managed in the interests of the domestic economy by the Bank of England. It was protected from speculation and from the vested interests of the financial elite. After the war Britain embarked on one of the finest programme of public works expenditures known in modern history – and society thrived.

Interrupted by war, and diluted at Bretton Woods in 1947, finance was still restrained as servant, not master to the economy through the age of economic and social advance from 1945-1970.

If the Eurozone were to throw off the ties that subordinate it’s prosperity to a small financial elite, it would feel the full force of the banking sector’s anger through its friends in the media, academia and politics. But very soon, Europeans would come to understand that the alternative was very much better than subjugation to a small, arrogant and morally bankrupt elite.

It was wonderful to be, first of all at such a professionally and well organised event (congrats to Mark Letcher and his team). It was also fantastic to be amongst such an interesting array of speakers including John Gapper ‘the secret gardener’ who has spent the last 35 years propagating wild flowers in Brighton and Hove (watch his talk here) and Alice Ferguson and Amy Rose – two mothers with a simple but brilliant idea to get children playing outside (watch their talk here).

My talk was on how we can afford to finance the Green Transition – watch below:

This morning I joined the Guardian’s panel of Martin Kettle, Len McCluskey and Matthew Oakley to give our verdict on today’s GDP numbers:

Ann Pettifor:

“The Chancellor must eat humble pie”

The statisticians, clutching at straws, blamed the victims – the British people – for the measly 0.2% growth in GDP. It turns out we are too fond of holidaying (the royal wedding effect) and basking in “warm weather”.

But this cannot explain the fall in manufacturing by 0.3% and the 3.2% fall in electricity, gas and water supply. Nor does it explain the rise by 0.7% in “business services and finance”. The fact is the economy remains unbalanced, and the coalition government is doing very little to restore some balance, and with it the potential for recovery.

And without economic recovery, there can be little hope for the public finances. The fact is, the chancellor cannot cut the deficit if the economy does not recover. Today’s numbers offer little succour. GDP is still lower than it was in 2006 – four years after the crisis “debtonated” in August 2007.

The chancellor’s budgetary outcome depends on the plans of the entire economic system and its reactions to the Treasury’s policies. Right now the British economy is responding to the government’s determination not to provide a stimulus to the very weak private sector – by faltering.

The argument is that Britain “cannot afford” a fiscal stimulus. That we “cannot afford” to boost the private and public sectors, create jobs, generate income and restore hope to 2.5 million unemployed people.

But we could, apparently, afford to bail out the banking system.

The coalition government’s determination not to stimulate the creation of employment, and with it the income that will generate recovery – will be viewed negatively not just by the powerful rating agencies, but by the British people too.

The fact is that just as work makes things affordable for individuals, so employment makes recovery affordable for the economy as a whole. And until the chancellor eats humble pie, and absorbs this economic lesson, neither the economy, nor the public finances will recover.

Martin Kettle:

“The chancellor is a weakened figure”

The longer the British economy continues to show no real signs of growth, the weaker George Osborne’s political stock looks. So aQ2 growth figure of 0.2% is clearly bad news for the chancellor’s authority. It could, of course, have been worse, and it very nearly was. A little growth is disproportionately better than no growth at all. But the fact is that growth has fallen over the quarter and has only risen by the same tiny amount of 0.2% since the spending review in the autumn. Osborne will still blame Labour for this underlying weakness, but the passage of time gradually weakens that argument, while Labour can point to the fact that growth was rising when Alastair Darling handed over in May 2010.

This figure puts a lot of pressure on the economy’s ability to reach the 1.7% annual growth forecast over the next six months, and this in turn increases pressure on Osborne to respond with new measures. No chancellor likes to be in this position at any time, and Osborne is particularly at risk from the economy’s negligible pick-up, since his whole strategy is based on the argument that strict fiscal disciplines will aid growth, of which there is no evidence so far. Yet Osborne cannot easily take any of the quick-fix measures – like cutting taxes or interest rates – either. The chancellor is a weakened figure now and his enemies and rivals will scent opportunities.

• Martin Kettle is associate editor of the Guardian

Len McCluskey:

“The price we pay for neo-liberalism”

Set alongside Britain’s moribund economy, Monty Python’s parrot would look like Usain Bolt. The growth figures show our country still stuck in nought-point-something land while other European states, most notably Germany, power ahead.

There are three related reasons for this.

Most immediately, the government’s exclusive reliance on savage public spending cuts are sucking the air out of the economy and depressing demand when a stimulus is clearly needed.

Second, we have allowed our manufacturing base to shrivel while relying over-much on a bloated and now semi-bankrupt financial services sector, for which “growth” still mainly means bigger bonuses. The axe currently hanging over Britain’s last train-building plant in Derby suggests that little has changed in official thinking here.

Third, there is no plan for growth beyond an entirely dogmatic trust in the private sector. The possibilities of, for example, using the state’s stake in major banks to drive investment are simply ignored.

Today’s figures are the price we pay for having a government trying to tackle the crisis of neo-liberal economics with essentially neo-liberal tools. The new thinking needed to build a vibrant 21st century economy which delivers for everyone, not just the elite, most likely requires a new government.

• Len McCluskey is general secretary of Unite

Matthew Oakley:

“It’s about sticking to plan A”

This relatively gloomy GDP data is not unexpected and should not be a cause for panic. However, it does underline that the government needs a more coherent and ambitious approach to growth. This would not mean spending more: the government must stick to its budgetary plans. Not doing so would see us return to an approach based on borrowing and government spending, which we have seen to be unsustainable. Instead it must undertake fundamental reform that focuses on the long term.

Policy Exchange will soon be publishing a report outlining how a new pro-growth approach to planning and urban development could stop central and local government control constricting the growth of our cities and towns, and hindering business development. To back this up, the UK also needs to accelerate reform to its welfare system and to transform transport infrastructure investment to bring in more private sector involvement and improve our creaking networks.

Finally, a clearer approach to industrial policy is needed. This is not about picking winners but about being clear on where growth comes from and where the UK has a comparative advantage. It is then about ensuring that structural reform facilitates growth in these areas and encourages seed funding for innovative businesses, while encouraging robust competition.

Reform in each of these areas would not be about snap decisions based on one or two poor quarters of growth, nor would it be about making headlines with policies that sound good but deliver little. It is about sticking to plan A and backing that up with a greater focus on structural reform that allows the UK to grow now and in the future.

• Matthew Oakley is head of enterprise, growth and social policy at Policy Exchange