The economy flat-lines but Osborne hails it as “positive news”

The increasingly embattled Chancellor of the Exchequer, George Osborne was greeted with more bad news when he opened the file containing the latest growth figure this morning. The economy grew by one fifth of a percent in the second quarter of the year, way off the target of 0.8% needed to stay on track with Office of Budget Responsibility’s (OBR) downwardly revised, revised, revised forecast of 1.7%. Perhaps greeting the figures with the statement that it was “positive news” was more a relief that it was not a negative figure than any real belief that growth of just 0.2% was sufficient to lend any credibility to his economic strategy.

Even though the Office for National Statistics says the “special factors” such as the unusually warm weather, the Royal Wedding and the Japanese tsunami reduced the overall figure; commentators are bound to point out that the Royal wedding was almost universally acclaimed as a fillip for the sagging economy. The truth is, consumer confidence is ebbing away as purse strings tighten and employers are starting to feel the pinch of an economy that is not yet dead, but rapidly getting there. The growth of just 0.2% over the last nine months is parlous and compares very unfavourably with the figures Gordon Brown’s strategy posted of 2.1% in the previous nine months.

Once again, the OBR will have to downgrade its forecast – the fourth time since it was established just over a year ago.

Osborne’s supporters are casting around for objects of blame, but the real comparison is with Germany and France, both of whom have enjoyed good growth in the same period as a result of their economic policies and in reality it is the polices of the government of starving the economy and imposing higher tax on purchases that are causing the steady slide to another recession.

When Alistair Darling reduced VAT to 15 per cent during the financial crisis, consumers spent £9bn more than they otherwise would have done. A similar reduction would enhance consumer confidence and get the economy going again. Osborne is getting it wrong – the figures don’t lie.

Osborne remains bullish however, saying “The positive news is that the British economy is continuing to grow and is creating jobs. And it is positive news too at a time of real international instability we are a safe haven in the storm. Our economy is stable at this time because this Government has taken the difficult decisions to get to grips with Britain’s debts. Abandoning that now, as some argue we should, would only risk British jobs and growth.”

Meanwhile, the government is following Gordon Brown’s lead by introducing more Quantitative Easing into the economy, something that has largely gone uncommented on, except from the increasingly isolated Vince Cable.