David Cameron sets up defences ahead of storm over economic growth

Figures for second quarter expected to show Britain’s economy has flatlined for almost a year An unrepentant David Cameron prepared consumers and the markets for publication on Tuesday of gruesome growth figures by admitting Britain’s “path back to growth will be a difficult one”, but insisting no shortcut lay in either a fiscal or monetary stimulus. The chancellor, George Osborne, also set out his defence ahead of an expected political battering by claiming he had “turned Britain into a safe harbour in a storm” by focusing so rigidly on deficit reduction. He admitted: “There are risks to current and future growth.” Both the prime minister and the chancellor spoke about the depth of Britain’s economic difficulties on Monday after being briefed on the growth figures for the second quarter to be published by the Office for National Statistics . The figures are expected to show Britain’s economy has flatlined for almost a year, contrasting with strong growth in Germany and, to a lesser extent, France. Most economists believe the economy ground to a halt in the three months to the end of June after a big slowdown in the manufacturing sector, which has been instrumental in preventing the economy sinking back into recession over the last 18 months. Estimates range from a small contraction of 0.1% or 0.2% to growth of 0.7%, with most economists expecting about 0.2% to 0.3%. Either way, the numbers will push the Office for Budget Responsibility (OBR) into downgrading for the fourth time its growth forecast for 2011 – currently predicted to be 1.7 %. The OBR is likely to do that for the chancellor’s autumn statement, expected after third-quarter growth figures on 25 October. Cameron and Osborne refused to join the business secretary, Vince Cable, in his call on Monday for a further bout of monetary expansion by the Bank of England through a second round of quantitative easing, including the purchase of corporate bonds. Cameron said: “There isn’t some great monetary stimulus you can give when interest rates are as low as they are. The right steps for an economy like ours is to get on top of your debt and deficit and then make it a better place for businesses to grow and expand and employ people.” He added: “There is no country really that can afford another fiscal stimulus. They have all run out of money.” Osborne also declined to support Cable in calling for monetary expansion. He vowed not to change his plan to eradicate the structural deficit within four years. “We have an economic plan, we’re sticking to the economic plan,” he said. “In a world of great uncertainty, we’ve brought stability in the British economy, we’ve brought interest rates down, and we’re creating private sector jobs.” He added: “We turned Britain into a safe harbour in the storm. That’s not easy politically. We took some very, very difficult decisions because we had to. Our interest rates have come down while others have gone up. That has provided the stability that the British economy needs in a very, very unstable global environment.” Labour accused the government of getting its excuses in early, pointing out that growth would have to be 0.8% in the second quarter for the OBR growth projections for 2011 to be on track. It said growth of as high as 0.3% in the second quarter would severely hit Osborne’s credibility. Labour also insisted market interest rates for bonds were low and falling before the election, suggesting there was no need to go further than Labour’s plan to halve the deficit over a parliament. The TUC’s general secretary, Brendan Barber, said: “A target of eliminating the deficit in just four years always looked as if it came from what others might call ‘rightwing nutters’, rather than sensible economics.” The economy grew by 0.5% in the first three months of this year, but this was cancelled out by a 0.5% contraction in the three months to December 2010. A flat period in the previous August and September extended the UK’s run of zero growth. In a sign of slowing demand, figures from the British Bankers Association showed overall lending to non-financial companies fell by £2.5bn last month, following a similar drop in May. June’s drop was bigger than the average monthly fall of £1.4bn over the previous six months. Howard Archer, chief economist at IHS Global Insight, said the drop was more likely to be connected to a collapse in confidence than a dearth of bank funds, though small businesses were finding it difficult to get loans at affordable rates. He said the fall was “evidently influenced significantly by low demand for credit and by many companies looking to pay down debt … Companies are becoming increasingly wary about borrowing and investing in the current difficult economic environment – which in itself is worrying for growth prospects.” George Buckley, chief UK economist at Deutsche Bank, said the economy would begin to recover in the second half of the year after a rocky start, though there were many factors that could dampen growth. Jonathan Portes, director of the National Institute of Economic and Social Research, urged ministers to ease fiscal policy. He said: “If the government chooses to ease fiscal policy in response to the weak growth, which too tight fiscal policy is delivering us, that would represent a sensible change of course”. Economic policy Economic growth (GDP) David Cameron Manufacturing sector Economics Patrick Wintour Phillip Inman guardian.co.uk

Posted by on July 25, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.