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.
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?