Osborne faces key test of austerity

• Economists predict slight growth after winter chill • Warm Easter may cause spike in second quarter George Osborne faces a key test of his austerity policies this week when official data will demonstrate whether Britain’s economy has returned to growth after the shock 0.5% contraction at the end of last year. Such is the level of interest in the GDP numbers for the first three months of 2011 that the Office for National Statistics is taking the unusual step of holding a live briefing. The last time the ONS made such a move was in January 2010, when Britain’s recession was deemed to have ended. The contraction in the economy in the last quarter of 2010 was blamed on the unusually heavy snow; without the impact of the weather, said experts, the growth in the economy would have been flat. Economists such as Howard Archer, chief UK and European economist at IHS Global Insight, are forecasting that the economy will have grown by 0.6 in the first quarter of this year – but caution that it will not signal a strong recovery. “While at first glance this looks a decent performance, in actual fact it would represent a far from dynamic performance after the weather-influenced contraction of 0.5% in the fourth quarter of 2010 … just as the fourth quarter 2010 contraction overstated the economy’s weakness, so growth in the first quarter of 2011 will highly likely overstate its strength,” Archer said. The coalition is aiming to rebalance the economy and stimulate manufacturing and may be encouraged by suggestions that one of the UK’s largest car manufacturers is considering an expansion that could create more than 1,000 jobs. Jaguar Land Rover is reportedly considering whether to build a new engine plant in the UK, with Wolverhampton and south Wales the potential destinations. A spokesperson for the Indian-owned manufacturer declined to comment but said the company had “ambitious” plans for growth. The UK car industry has recovered from its nadir in the 1970s and 80s and exports £5bn worth of motor vehicles a year – although Japanese manufacturers in the UK are being hit by a lack of parts caused by last month’s earthquake. Even before the first-quarter numbers are published, economists are already focusing on the second quarter and trying to gauge the impact of the late Easter and royal wedding on the economy. Some argue that the loss of official working days will reduce growth; others argue that consumer spending could be artificially inflated by the public holidays coinciding with unseasonably hot weather. PwC predicted that London’s economy could benefit by £107m from the wedding as people travel to the capital. Waitrose, the supermarket arm of John Lewis, said the wedding had boosted sales. It said sales in the week ending 23 April were 10% higher than the week before Easter last year. Easter Saturday saw record sales of barbecue items such as Pimm’s and free-range sausages. Mark Price, managing director of Waitrose, said: “Shoppers are already stocking up for their royal wedding celebrations, whether it’s a fully fledged street party or simply a glass of English fizz with family and friends.” In the coming months, Archer expects growth to “moderate appreciably as the fiscal squeeze increasingly kicks in from early April, some temporary growth drivers wane and consumers limit their spending in the face of serious headwinds, most notably the major squeeze on their purchasing power”. The economy data will be scrutinised by the Bank of England’s monetary policy committee, which is split over whether to raise interest rates from their historic 0.5% low to counter inflation. Chris Williamson, chief economist at Markit, said: “Only an especially strong GDP reading would risk tipping the heavily split Bank of England’s policymakers towards tightening in early May.” Economic growth (GDP) Economics Economic policy George Osborne Liberal-Conservative coalition Conservatives Jill Treanor Dan Milmo guardian.co.uk

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