Since the brilliant opening event of the Olympics, it is clear that there has been a national mood swing as people have been captivated by the competitions, performances and venues. Even one national newspaper, which had been determined to deliver relentless reporting of bad news stories, realized it was out of synch with the national mood and was forced to celebrate the achievements. Although the men’s 100 metres was awesome, it was Jessica Ennis’s superb heptathlon gold medal that has proved the star of the show.
However, the contrast between the success of the Olympics and the dismal performance of the economy could not be greater. And, when the carnival has moved on and the current good mood has faded, it’s the harsh reality of the real economy that will become prominent – not just in the media, but for the prospects of most households and businesses.
Last month [see 23 July 2012 U-turn required below], I drew attention to the gloomy International Monetary Fund report, the significant increase in government borrowing and the unemployment statistics.
Now, the National Institute of Economic and Social Research (NIESR) has slashed its growth forecasts for this year and next year. Having previously expected zero growth this year, NIESR expects the economy to contract by 0.5 per cent and suggests that growth will be limited to 1.3 per cent next year, compared to its previous forecast of 2 per cent.
This means that George Osborne’s deficit-busting plans have been shot to pieces, with borrowing set to surge by £138.5 billion in 2012-13 as tax receipts fall. This is equivalent to a staggering 9 per cent of the UK’s Gross Domestic Product and far higher than the government claimed its plans would deliver.
NIESR said that if the Chancellor had not cut so fast and so deep – by delaying his fiscal consolidation plans for three years until 2014 - he would have saved the economy £239 billion over the next decade and staved off up to 200,000 job losses in the past two years.
The coalition government’s economic policies are disastrous and are causing long-term damage. A change of tack is still urgently required.