Growth’ Desperately Poor: Government should reset fiscal policy ‘sat nav’ before it’s too late, says CIPD
Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD) comments on the preliminary estimate of second quarter 2011 UK GDP growth published earlier today by the Office for National Statistics (ONS):
“Quarterly economic growth of anything less than 0.5% would have been poor at this stage of the recovery from recession – the CIPD expected 0.3% – but 0.2% is desperately poor. We must be careful to not attach undue weight to excuses about preliminary statistical measurement or the special ‘one off factors’ highlighted by the ONS – the emerging underlying path of GDP growth and forward looking indicators show that the UK economy is being starved of the demand needed to raise output substantially, create enough jobs to cut unemployment and prevent a further deterioration in the fiscal deficit. With the effectiveness of a further bout of quantitative easing far from clear, and even the most growth friendly supply side measures unlikely to work properly in a demand vacuum, surely the Government must now come up with urgent plans to alter a fiscal policy stance, which mounting evidence suggests the economy simply can’t bear at present.
“It’s becoming increasingly clear that, as the CIPD warned, the Government was far too optimistic last year when it set course on a very rapid path to fiscal deficit reduction. Sticking to that course as demand weakens risks crippling the economy for years to come and will make the task of deficit reduction even harder. Ministers should reset the fiscal policy sat nav before it’s too late, in the first instance by reversing last January’s misguided hike in VAT. The argument that a fiscal policy reset would diminish the UK’s credibility in financial markets and itself damage growth prospects has some merit but is overdone. By far the greater threat to credibility is to carry on with a policy that is obviously hurting but shows little sign of working.”
Information taken from official CIPD Press Release