Double Dip Fears Grow

The half-point fall in GDP has serious political ramifications. If we get a second quarter of what Gordon Brown would call “negative growth” we will be in recession. Ed Balls will have been proved right and George Osborne’s credibility will be shattered. One policy change could prevent that happening. Suspend the VAT hike.

The short-term political hit of executing a u-turn versus the wrecking of the long-term mission to cut the deficit is a calculation that George Osborne won’t like to make. He is touring the studios saying that he “won’t be blown off course by bad weather”. The trouble is he is making the bad weather with this VAT hike.

The VAT hike depresses GDP growth, adds to already rampant inflation and hits the poorest hardest. If GDP in this forthcoming quarter is slightly negative, he’ll have only himself to blame. Why maintain a tax hike that suppresses the very consumer spending necessary for growth?




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Quote of the Day

The FT’s Wolfgang Munchau on the “fake maths” of economic forecasts:

“The truth is that our ability to forecast the future beyond the current quarter is limited… The curse of our time is fake maths. Think of it as fake news for numerically literate intellectuals: it is the abuse of statistics and economic models to peddle one’s own political prejudice… The fakeness of the maths lies in an exaggerated inference. Economic models have their uses, as do opinion polls. They provide information to policymakers and markets. But nobody can see through the fog of the future.”

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