Inflation has hit 3.7 per cent and is widely expected to rise further in 2011, so there is now considerable unease among economists that Britain may be returning to a period of stagflation not seen in a generation.
Labour’s new Shadow Chancellor, Ed Balls, was quick to seize on the figures as further evidence that the diet of large spending cuts proposed by the Conservative-led coalition will cause serious and lasting damage to the vulnerable British economy. Mr Balls said that “simply slamming on the brakes will not work. It is not a strategy.”
He urged Chancellor of the Exchequer George Osborne not to “make up excuses about the weather”, adding that the Chancellor should not “make excuses when you need to make a change. Do it quickly.”
Although it remains unclear whether Britain will see further negative growth between January and March which would mean a double-dip recession, with consumer confidence low, and the 20 per cent VAT hike now in place, it is unlikely that consumer spending and the private sector will generate anything more than very sluggish growth, especially as large-scale public sector redundancies begin.
The figures contrast with those of the first two quarters of 2010 as the then Labour Government’s stimulus measures helped the economy to grow at a quarterly rate of 1.1 per cent.
The cancellation of private sector contracts and public fear of looming tax increases meant that growth fell to 0.7 per cent in the third quarter with a projected contraction in the fourth.
Statistics also reveal that, despite the large-scale public spending cuts, the Conservative-Liberal Democrat coalition is unlikely to have reduced the size of Britain’s deficit. Although it is possible that the government may still hit its borrowing target for 2010/11, the current budget deficit actually rose to £313.5 billion in December from £312.8 billion a year earlier, indicating that, despite the pain, there has been no gain and the much-trumpeted austerity measures are not actually reducing the deficit.
In other worrying news, the Office of National Statistics revealed that youth unemployment among 16-24-year-olds has jumped by 32,000 to 951,000, the highest level since current records began in 1992. The total is expected to exceed 1 million in the next few months. Indeed, while the overall unemployment rate remains at 8 per cent, the figure for young people is now a shocking 20.3 per cent, another record.
Having cut Labour’s Future Jobs Fund – which guaranteed a job to any young person out of work for more than a year and would have provided 200,000 jobs – the Government is hoping that its work programme, which will offer young people unemployed for six months or more support to write a CV and practice interview skills, will help increase youth employment. But with youth unemployment rising rapidly and job vacancies falling, this is another Tory claim which looks as if it will come out in the wash.
