It has been a dismal few months for George Osborne, first the economy slips into a double dip recession for the first time since the 1980s, then he gets booed when presenting a medal at the Paralympics. And the blows keep coming; he was recently blasted for trying to sit in the first class carriage of a train when only paying for economy ticket.
If he’s not getting blamed for economic mismanagement then he is being made the butt of jokes because of his privileged upbringing.
But could George actually have the last laugh? Later this week the first estimate of GDP for the third quarter is expected to show a robust return to growth with economists forecasting a whopping 0.6% increase on the second quarter.
This would drag us out of recession and be far better than our neighbours’ growth rates in Europe and the US.
So what did he get right?
But why the sharp jump in growth and can Osborne take all of the credit? The Jubilee Bank holiday in June is blamed for the recent loss of growth in the economy as people took time off work and either stayed at home or went abroad.
The Office for National Statistics admitted that it is difficult to quantify the impact on growth from scheduled bank holidays, but it has estimated it could have had a negative effect to the tune of 0.4%. Thus, when you strip out the catch-up effect from the Jubilee holiday then growth in the third quarter may be a less impressive 0.2% to 0.3%.
However, there have been pockets of strength in recent months. The most outstanding was in retail sales in September. We hit the shops with a vengeance last month, managing to spend £6.6 billion a week, which is higher than the £6.5 billion we spent each week in September 2011.
Are consumers more confident in Osborne’s ability to manage the UK economy and is that why they are hitting the shops? Apparently not. The ONS put the jump in sales down to colder weather than normal last month, which sent people scurrying to buy winter clothes early, and a bounce in online sales making up for the dip in August as people watched the Olympics instead of shopping online.
Plenty of work
Sadly for Osborne he has seen his popularity deteriorate even though the UK has been producing jobs at one of its fastest-ever paces. The economy has been producing more than 200,000 jobs every three months this year, which is a stunning pace and contrasts sharply with the US where job growth remains sluggish and the eurozone where unemployment in countries like Spain and Greece is more than one in four.
But unfortunately for Osborne, job creation has not fuelled a feel good effect in the wider economy. Economists are baffled at how the UK can continue to create jobs although the economy has gone into reverse. This has led some people to believe that job losses are waiting in the wings, so those people in employment are still cautious and concerned they may lose them in the future.
Cuts paying off
Osborne’s chief focus since the coalition came to power has been to drastically cut the UK’s debt levels and eradicate the budget deficit. But the deficit has not been coming down, remaining stubornly high and leading the oppostion – among others – to declare “Plan A isn’t working”.
While Osborne has been blamed for focusing too much on debt reduction and not enough on growth, he managed to score a rare goal last week when the UK’s public finances for September followed the tone set by the better economic data eslewhere. The UK budget deficit was revised lower by £7 billion last month, which helps to take the pressure off the chancellor as he builds up to his Autumn Budget statement in December. Maybe Plan A has a chance after all.
But even this data is not all good news for Osborne. The reduction in the deficit was mostly down to luck rather than adept management of the economy on Osborne’s part.
The ONS owned up to a mistake in the public finances for August that caused our borrowing needs to be overstated. It also blamed the mistake on methodological changes, with only £3.4 billion coming from revised budgets from Government departments.
Added to this the Government is still borrowing more than it had previously planned to, which jeopardises its debt-to-GDP target.
So, even with the good news on the deficit, Osborne may still have to “break” his fiscal rules during his pre-Budget report in December as weak growth in the coming years increases the pressure on the public purse as tax revenues are projected to decline.
Osborne needs to ensure he has a thick skin if he does break his own fiscal rules as he will be an easy target for both criticism and ridicule from the opposition and the media. But the real nail in the coffin for Osborne’s credibility will be if the UK loses its triple A credit rating.
So far we have held on to our triple-A credit rating when other countries – including the US and France – have lost theirs. Osborne even promised to maintain it at the risk of the UK’s economic growth.
If we lose our coveted credit rating then Osborne’s tenure at Number 11 Downing Street would start to look very tenuous indeed. But if he we keep it, Osborne may well have the last laugh.