George Osborne’s year has ended with a bump. Like a Strictly Come Dancing finalist drunk on high marks for his paso doble and tango, he has come unstuck on the last foxtrot.
Official growth figures have been downgraded for the third quarter, undermining boasts that the UK was marching hand in hand with the US as one of the best-performing economies in the western world.
Only last month the chancellor was still feeling the afterglow of the Conservatives’ election victory in May. His autumn statement mini-budget was considered a triumph of political manoeuvring that set the government fair for re-election in 2020.
Many of those judging Osborne’s high kicks and fancy footwork held up perfect scores at the time.
A series of revisions by the Office for Budget Responsibility had upgraded the UK’s growth forecasts while maintaining the steady path of deficit reduction. With the economy expanding at a rate our European neighbours could only dream of, and the annual deficit predicted to reach zero by the end of the parliament, Osborne’s chances of becoming the next prime minister seemed on track.
Now that the Office for National Statistics has told us that growth in the third quarter was lower than previously forecast, the rate for the whole year is likely to be around 2.2%, compared to 2.9% in 2014.
It comes on top of the news from the ONS that the government’s borrowing was higher in November than in the same month last year, when this period was supposed to be one when borrowing fell considerably.
These twin blows illustrate how the UK needs strong growth to improve the public finances. Without stellar growth it is much harder to reduce the still large gap between government spending and income.
The Treasury countered that Osborne’s performance, while no longer top of the class, is still better than most.
But as several analysts and business groups emphasise, the economic recovery has less momentum than previously thought and as consultancy Capital Economics puts it, “still looks worryingly unbalanced”.
Much of Osborne’s supposed success is built on a return to rampant house prices and an influx of migrants to swell the number of workers rather than the lacklustre increases in business investment and trade, they say. The latter has improved only slightly since the 2009 recession and, with imports outpacing exports, is a drag on growth.
Ruth Miller, one of the consultancy’s UK economists, warned that much of the recent growth has come from consumers, who have reduced their savings or borrowed more to enhance their disposable income, even as their wages have outstripped inflation by more than 2% since January.
As the year ends, the consumer is running out of puff and cannot sustain the same spending into 2016 without wages rising faster, digging deeper into their savings pot or borrowing more.
With manufacturing in decline and construction faltering, the next year could be tougher all round.
Osborne will hope there are no more missteps and the OBR forecasts remain optimistic. With an election looming on membership of the European Union, possibly next summer, that appears unlikely.
This article was written by Phillip Inman Economics correspondent, for theguardian.com on Wednesday 23rd December 2015 14.11 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010