Napoleon always said he wanted lucky generals, and by that token David Cameron chose the wrong man in George Osborne. Even when the chancellor received some desperately needed good news – as he did on the day after the budget – it came with a nasty sting in the tail.
On the upside, the data for retail sales and the public finances was better than expected – far better in the case of the high street and online spending. Less welcome was the evidence from the eurozone that the double-dip recession, which has gripped the single currency area for the past year, is getting worse.
On balance, Osborne will probably be paying more attention to what's going on across the Channel, as that will have the bigger impact on the economy's growth prospects this year.
The monthly snapshot of manufacturing and service sector activity for the 17-nation eurozone fell to its lowest level for four months, dashing hopes that a gentle recovery might at last be under way. The outlook darkened for Germany and France, pushing the overall purchasing managers' index down from 47.9 to 46.5. Analysts said the reading was consistent with eurozone GDP contracting by 0.3% a quarter.
Even worse, the PMI pre-dates the latest flare-up in the eurozone crisis caused by the botched bailout for Cyprus. There will almost certainly be knockon effects from the latest twist in the sovereign debt saga, not just on confidence and spending, but on the willingness of banks to lend.
What happens in the eurozone matters deeply to Britain, as the chancellor made clear in his budget speech. Europe is comfortably Britain's largest trading partner and the eurozone crisis was largely responsible for the 0.3% drop in the export of goods and services last year. The Treasury expects life to become progressively easier for British companies, and is pencilling in a 1.5% increase in global exports this year and a 4.4% jump in 2014. These forecasts will be at jeopardy unless the eurozone starts to pull out of a downturn that has meant there has not been a single quarter of positive growth since 2011.
But if the external outlook is poor, isn't it possible that a stronger domestic economy can come to the rescue? In the short term, the answer to that is yes. Retail sales growth bounced back strongly in February from the weather-related plunge in January, and the 2.1% pickup was far stronger than the City had been prepared for. Unless there is a big drop in spending in March, retail sales will be higher in the first three months than in the final quarter of 2012, helping the economy avoid a triple-dip recession.
The chances of February's strong retail sales growth being sustained throughout 2013 look slim, however. Earnings are growing more slowly than prices and the improvement in the employment picture appears to have stalled. These factors will act as a brake on spending.
Similarly, the Treasury was not getting too excited by the latest public finances figures. These showed the deficit in February at £2.8bn, well down on the £11.8bn in the same month last year. Even once a couple of one-off factors – the transfer of the proceeds from the Bank of England's asset purchase scheme and the sale of 4G licences were factored in – the deficit was still £4bn lower than in February 2012.
Yet, some of this improvement is being caused by departmental spending in Whitehall being deferred until next year, and the underlying picture is that the underlying deficit will remain at around £120bn in the next financial year. Only if the economy significantly exceeds the Office for Budget Responsibility's 0.6% 2013 growth forecast will the deficit start to come down more rapidly. The depressing news from the eurozone makes that harder to achieve.
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image: © Holly Occhipinti