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Tuesday, July 26, 2011 

Still running on fumes.

It's a gentle, fragile thing the new British economy. The old cliché used to be that when America sneezed, the rest of the world caught a cold. We do things differently now. Unexpected, truly world-shattering events like the sun deciding to beat down in April meant that instead of 0.7% growth between April and June, we instead got 0.2%. Just in case the Office of National Statistics, which is getting very good at coming up with excuses for ministers, having previously blamed the snow for the economy flat-lining in the last quarter of last year, felt that wouldn't wash with many people, it also pointed towards the Japanese earthquake, which it's true did have a knock-on effect on manufacturing, with some production lines here having to temporarily shut down, and the Royal wedding, which had much less of an effect and we all knew was coming.

If George Osborne isn't much cop at spearheading a recovery which doesn't resemble the water in the Dead Sea, then he does at least have the invaluable skill of coming up with corny soundbites. At the end of the Budget he declared he had put fuel in the tank of the British economy, having taxed North Sea oil and gas to take a whopping penny off fuel duty. Today he assured us all that we're "a safe haven in a storm of international stability", even while our erstwhile competitors with major problems, like the United States in particular, which also felt the ill effects of the Japanese tsunami, have far higher growth forecast. As Larry Elliot points out, for all the talk of rebalancing the economy away from the financial sector, a difficult enough task without imposing austerity at the same time, manufacturing remains 8% below the level it was at 5 years ago while the banks have bounced back straight back, buoyed up by billions of pounds of taxpayer's money. The bankers meanwhile just paid themselves another £14bn in bonuses.

In the same way as that makes the notion that we're all in this together laughable, it's therefore to be expected one of the proposed solutions is to drop the 50p top rate of tax for those earning over £100,000 as soon as is feasible.
As Boris Johnson almost said, Britain needs to signal it's open for those looking to cream off the most they can for themselves while pay the lowest possible amount to the exchequer for doing so. It doesn't matter that it was out of control consumption which helped get us into this mess in the first place: any growth, regardless of how sustainable it is or the side-effects it will end up having will do when so far nothing else has worked.

Having boxed themselves into this approach, regarding even the slightest deviation from their deficit reduction plan as being akin to putting us directly on the path to a Greek-style default, the Tories have left themselves with no wriggle room whatsoever. They won't countenance more quantitative easing, probably wisely considering inflation, they'll never agree to going back on the rise in VAT, and they steadfastly refuse to contemplate anything slightly resembling a stimulus package. All bets have been placed on the private sector saving the day, and while it's been creating jobs,
the JSA claimant count continues to rise as GDP flat-lines.

It might well be that there simply isn't any room for manoeuvre now with the combination of interest rates at historic lows and markets jumping at shadows, but this was all the more reason to have a Plan B and Plan C in reserve in case everything took a turn for the worse. Instead we simply have politicians who refuse to admit to being even slightly worried by such low, stagnant growth. Denial it most certainly looks like, even if Ed Balls isn't the best person to be point the finger.

Still, if there's one thing Osborne can surely rely on it'll be the support of the Murdoch press, considering those 16 meetings with various NI representatives. Let's have a look at the Sun's leader:

Mr Cameron's team talk a good game. But that is all it is. Talk.

Time is running out for this Government to get a grip.


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Of course the joke is that had the economy grown as predicted it would have been because the hot weather brought people out to shop; the Japanese earthquake meant manufacturers looked to British firms for their supplies; and the Royal wedding brought a tourism boost.

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