Duncan’s Economic Blog

Time for Osborne to think again

Posted in Uncategorized by duncanseconomicblog on September 5, 2011

Today’s Service Sector PMI showed the biggest month on month slowdown in the crucial sector in a decade. Taken together with the weak manufacturing and construction PMIs from last week there is now a fair chance that the UK economy is actually contracting once again.

This isn’t a surprise – we are currently going through a global slowdown and the odds are that both Eurozone and US GDP are also currently falling.

Whilst it would be wrong to lay all of the blame for this at the feet of the Chancellor – he can hardly be held responsible for the US and European economies – it is fair to ask if now is the time to think again on the pace of his cuts programme.

It is now well established that ‘expansionary fiscal contraction’ is a myth. Cutting government spending slows growth rather than adding to it. Whilst the deficit has to be brought down in the medium term, a programme of tough austerity at a time of falling demand is a recipe for disaster. The Chancellor himself believes that the economy is currently too weak to reform the banks, so why is it strong enough to cope with the austerity agenda?

This is why previous backers of Osborne’s agenda such as the IMF and PIMCO (the world’s largest bond investor) are now backing away. It’s time for Osborne to think again.