George Osborne’s policies have failed. He talked down the economy — and now it is sinking.
The data releases this week have all been bad for the coalition. It started in the United States, which matters because generally what happens there is repeated in the UK a few months later.
First, the Conference Board published data on consumer confidence that showed a much greater collapse than had been expected, especially in relation to the respondents’ expectations for the future.
Second, the Case-Shiller house price index — the leading measure of US home prices — shows that the US National Home Price Index declined by 4.2 per cent in the first quarter of 2011, after having fallen 3.6 per cent in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1 per cent versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels. As of March 2011, 19 of the 20 MSAs covered the index were down compared to March 2010.
Third, ahead of the official release of employment data on Friday, an ADP Employment Services report suggests that private-sector payroll growth slowed sharply in May, falling to the lowest level in eight months. This prompted some economists to lower their forecasts for job growth in Friday’s data release. It looks as if the US is slowing.
In Europe, the final Markit eurozone manufacturing PMI fell sharply to a seven-month low of 54.6 in May, down from 58.0 in April and below the flash estimate of 54.8. The fall in the index was the largest since November 2008, as manufacturers reported slower rates of increase in output, new orders, employment and inventory accumulation. China is also slowing. Economic output in Australia shrank by 1.2 per cent in the three months to March — the worst quarterly slide since 1991 — the national accounts of the Australian Bureau of Statistics showed yesterday.
The data releases for the UK today were truly awful. They follow from the public finance data that shows that, far from paying off the debt, Osborne is increasing it. Plus such growth as there wasn’t - GDP grew by zero over the past six months — was driven by government spending. Then, today, the PMI for manufacturing in May was worse than the market expected.
According to Capital Economics, on past form, that leaves the balance consistent with quarterly falls in manufacturing output of around 1 per cent. Some of this fall, it argues, is likely to have been driven by the temporary disruption to supply chains caused by the Japanese earthquake. But Capital Economics points out that the new orders balance also fell from 50.8 to 48.3, which, it argues, suggests that “beneath the monthly volatility, a sharp underlying slowdown in demand is taking place”.
There were also a number of statistical releases from the Bank of England, which added to the bleak picture. It appears that banks are simply not lending enough to get the economy moving. This suggests the poorly named Merlin project — which should be renamed the Mickey Mouse project — has not worked any magic. First, the money-supply growth was weak. Second, the stock of lending to UK businesses overall contracted in the three months to February, as did the stock of lending to small and medium-sized enterprises. Third, the number of loans approved for house purchases fell by 4 per cent to a four-month low of 45,166 in April - the lowest figure for April since records began in 1992.
This inept Chancellor has talked the economy down by falsely claiming it was bankrupt when it wasn’t, which has decimated animal spirits among both businesses and consumers. He has also tried to blame a once-in-a-hundred-year global financial crisis on the previous government, which was clearly also untrue and hyperbolic. Osborne has implemented toothless regulation over the banks and has demonstrably failed to get them to lend. He also has no interest in controlling bankers’ bonuses, despite his absurd claims to the contrary when he was shadow chancellor. And all of this before the public spending cuts hit: currently it is the public sector that is the driver for growth but that is all about to change. The public finances are worsening, not improving.
The government’s economic policy is in total disarray and the economy is sinking. Osborne has been hoisted by his own petard; his numerous false claims were inevitably going to catch up with him and now they have. The coalition’s austerity programme was never based on sound economics and was simply a political move to shrink the state. Interestingly, the claims that the economics profession supported his actions have turned out to be false. In myNS column in the issue out tomorrow, I make clear that one of the initial signatories to the letter to the Times that Osborne touted as supporting him - the 2010 Nobel Prize winner in economics, Chris Pissarides - has now, embarrassingly for Osborne, turned against him and now opposes the ill-conceived and wreckless austerity programme of cuts and tax increases.
It is hard to find any economists outside the City of London that do support the government’s strategy, other than a few of the usual right-wing hangers-on.
It is time for Osborne to explain to the British people why his economic policies have failed and what he intends to do about it. My fear is that Slasher has inflicted so much damage on the British economy that it is too late to prevent us slipping back into recession.