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Falling economic growth is just the tip of the iceberg

Falling economic growth is just the tip of the iceberg

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Today's headline growth figure brought some terribly shocking news. Quarter-on-quarter growth has fallen substantially — to the lowest level since 2012. According to the Office for National Statistics, "the economy grew by 0.3 percent in the first quarter", well down on the 0.6 percent rate in the last quarter of 2014. If sustained, the current growth rate would equate to just 1.2 percent annual growth, far from being the "highest growth rate in the G7".

The trouble with these kind of statistics is that people pay too much attention to the headline rate, and not enough to the long term trends. I was saying that last year when Tories were trumpeting the "highest growth rate in the G7" and I am saying it today when — entirely unsurprisingly — things fell back down to Earth.

This, via the magisterial Simon Wren-Lewis is what we should really be looking at:

ONS GDP per head and trend

Our recovery has outperformed the G7 countries afflicted by more severe structural problems such as the eurozone members and Japan. But this is not a strong recovery. And the media and public really need to be woken up to this fact. Over the long run we are lagging way behind the U.S. and Canada. This is the slowest recovery since the South Sea Bubble 300 years ago

That's why I agree with Lord Ashcroft about the relative failure of the Tory general election campaign thus far. Ashcroft says: "Rather than relying on the identity of their leader and the risks of change, the Tories over the last five years ought to have laid the foundations for a campaign in which they could talk confidently about their plans for public services and to describe a Conservative vision of opportunity and prosperity for all."

They haven't done that at all. Tory failure to pull ahead in the polls reflects the failure of the government's policies to build a framework of "opportunity and prosperity for all". The track record speaks for itself: The rich are getting richer faster than everyone else. UK inequality has widened. Tory spending cuts have disproportionately hit minorities and the disabled, and hit the severely disabled most severely of all.

The status quo is a slow recovery characterized by low productivity, weak investment, insecure jobs, and a lack of affordable housing. And the Tories' platform of "keeping our economy strong" is a grotesque mismanagement of the truth.

But it is deeper than that: What the UK needed in 2010 was major public investment designed to get the wheels of the economy — and the whole economy, not just the parts of the economy inhabited by the wealthiest — moving again. What it got instead was a major program of severely ideological cuts designed to shrink the state. It is no shock to see that there was some degree of weak recovery, with the Bank of England engaging in large scale monetary stimulus, and with the government easing austerity measures in the run-up to the election.

But the falling growth rate is another factor — like low inflation, like zero productivity growth, like weak investment levels — illustrating that we have not outgrown the problems, even with interest rates at record lows. With yet more spending cuts to come after the election, recession beckons.

If Cameron manages to squeeze out victory in the election to become the head of the next government, he is likely to be forced to confront the reality that the last government and its ideology — his ideology — has failed.

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