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.


3 Responses

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  1. jomiku said, on September 5, 2011 at 2:27 pm

    You at least have a chance at a rational response from government. The GOP position here is summarized by Senator DeMint’s claim yesterday that the reason the economy is struggling is fear of regulation. The intent is to eliminate environmental and financial regulation and of course any labor regulation. The goal is not to make the economy better, certainly not for all Americans, but to eliminate these things they find offensive, some because they do help people with less (read for that in large part minorities) and some because their religious faith demands it.

    Want to watch a country self-destruct, look at the US.

  2. Dave Holden said, on September 5, 2011 at 5:58 pm

    The GOP are about god, guns and gays – they’re riding the wave of anti-government sentiment brought about by the failure of Obama to address the real problem, the banks and wall street.

  3. […] As worrying growth forecasts indicate the strong potential of a double dip recession, Faisal Islam at the Channel 4 Economics Blog argues that this is a deeply perilous moment for the coalition’s economic policy, and Duncan Weldon urges the Chancellor to change course. […]

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