Are we heading for a double dip?
Last month’s emergency Budget has increased the likelihood of the UK heading back into a recession, according to the government's tax and spending watchdog. The Office for Budget Responsibility (OBR) said cuts in public spending and higher taxes have “logically increased the possibility of a double-dip”.
Geoffrey Dicks, one of three officials at the OBR, told a group of MPs that there were some budget measures that would reduce demand and hurt growth. He said: “We've taken half a percentage point off GDP. The near term outlook for GDP is not as good as it was before the Budget."
The OBR downgraded its growth forecasts in the Budget from 2.6 per cent next year to 2.3 per cent. However, Dicks said that he did not expect the economy to return to recession.
Brian Sloan, head of business and economic policy at the Greater Manchester Chamber of Commerce, told Insider that a double-dip wasn’t a certainty, but there are “nervous times” ahead. “Our recent economic survey showed clear signs that a recovery is underway, however, that is the second quarter situation and we are already seeing the impact of the deficit reduction plans impacting on private sector business,” he said.
Latest data from the North West purchasing managers’ index (PMI) report, released on Monday, pointed to another improvement in operating conditions in the region, with both output and new business growing in June. The Chambers of Commerce North West Quarterly Economic Survey also indicated an increase in orders for manufacturing businesses both at home and abroad.
“Manufacturing is performing very well at present, and the service sector is picking up, but it remains to be seen whether this will hold up when demand begins to fall when public sector job losses begin,” said Sloan. “The OBR’s new forecast of growth at 2.3 per cent for 2011 remains above those of many economists’ before the emergency Budget, therefore it is still overly optimistic.”
He added: “Any claim that the private sector can or would be willing to create two million jobs during a period of low growth, with the threat of recession, must also be treated with suspicion. The double dip is not yet a certainty but there are nervous times ahead.”
Jack Stopforth, chief executive of the Liverpool Chamber of Commerce, also shares Sloan’s concerns. “Labour’s commitment to halve the deficit in four years was always too tentative and government needed to cut deeper and sooner to calm the credit rating agencies,” he said. “The problem with the coalition’s approach is that no awareness of the link between public sector services and private sector supply chains is evident and there is no risk assessment.”
“In particular, the idea that the private sector can shake off the effects of the credit crunch and create employment on the scale of job losses anticipated in the public sector, is unbelievably naïve. Some recovery was evident in the first quarter of this financial year, but it was fragile and businesses were still finding cash flow and credit major problems – so very few are in a position to take up the slack.”
