Osborne warning on triple dip fear
The Government has been urged to re-think its austerity programme as Britain faces an unprecedented "triple-dip" in the economy by slipping into recession for the third time since 2008.
Official estimates yesterday revealed the economy shrank by a worse-than-expected 0.3% in the last three months of last year. Another quarter of negative growth and Britain will officially be in recession again.
Chancellor George Osborne, under pressure to adopt a "Plan B" alternative to his programme of cuts, insisted he would not "run away" from the problems facing the UK economy.
Job losses at Exeter airline Flybe and Bideford-based TE Connectivity have underlined how sluggish the economy of the Westcountry – heavily reliant on the stagnant service sector – is. The number of unemployed in Devon and Cornwall also rose last month.
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Business leaders in the region conceded the Westcountry economy was "bumping along" but said there were silver linings, such as John Lewis's investment in Exeter.
Labour wants support for growth through VAT cuts and spending on infrastructure, and Liberal Democrat leader Nick Clegg acknowledged the cuts have hurt the economy.
Ben Bradshaw, Labour MP for Exeter, said: "These are truly dreadful figures. There's basically been no growth in the economy since this Government came in. Osborne's fanatical austerity drive killed the recovery and we are all paying the price in higher borrowing, squeezed incomes and lost jobs like those at Flybe this week. With even the IMF now warning the Government must change course, what will it take for Osborne and Cameron to admit their economic policy has failed and lies in tatters?"
But George Eustice, Conservative MP for Camborne and Redruth, said Mr Osborne "must stick to the plan".
"These figures have been expected for some time and underline the fact that the road to recovery is a difficult one and that this problem is shared by other developed economies too," he said.
"However, we have to live within our means and if we were to be irresponsible and spend money we don't have, then mortgage rates would jump and that would squeeze household incomes further. There have been some more encouraging signs with the number of people employed showing the strongest growth in 20 years and we must stick to the plan."
The fourth quarter decline in gross domestic product (GDP) marks a sharp reversal of the 0.9% rebound seen in the previous three months, and shatters Prime Minister David Cameron's claim at the end of last year that "more good news" was expected.
Mr Osborne is under pressure to do more to heal the economy in his upcoming March budget, while criticism will intensify if Britain loses its coveted AAA rating following warnings from credit agencies the status is at risk.
But the Chancellor insisted deficit reduction would continue, saying: "We can either run away from those problems or we can confront them and I am determined to confront them so that we can go on creating jobs for the people of this country."
Experts fear the fourth quarter decline has put the UK on course for the first triple dip since official records began. Westcountry business leaders attempted to remain defiant.
Kim Conchie, chief executive of Cornwall Chamber of Commerce, said: "Since 2008, businesses in Cornwall have been used to tough times. But in terms of a prospective triple dip, businesses in Cornwall have never really experienced the peaks, but have been bumping along. I don't think anyone felt that surge of optimism, before this third dip. So, it's not a case of a dip, but of grinding along, and a matter of confidence – and no politician has found the answer to that, yet."
Nigel Hutchings, chief executive of South West Chambers of Commerce, said firms have been "bumping along and it's more a question of confidence".
But he added: "A number of sectors are doing well, including aerospace and tourism will pick up. And – headline administrations apart – if you look at retail, there is always a slump at this time of year, even in the good times. So before we start running round and saying 'we're doomed' let's just wait for the next quarter and see what happens."
David Savill, council member of Exeter Chamber of Commerce, said its own survey of the last quarter of 2012 was "completely at odds" with the national picture.
He said: "The proportion of Exeter businesses reporting investment business is at its highest level for ten years which is remarkable. Exeter continues to be a great place to do business and the inward investment from the likes of John Lewis in the city is testament to this."
GDP – a broad measure for the total economy – would have to contract again this quarter for the UK to be back in recession, but hopes of a rebound are starting to fade after a snow-hit start to 2013 – estimated to have cost the economy more than £500 million a day.
Experts said the economy was suffering "payback" from the rebound in the third quarter, which was fuelled by the Olympics and clawed back activity that was lost during the Queen's Diamond Jubilee holiday.