"The policy trajectory was wrong to begin with. When we look back on this period in five years time, we will say that one of the biggest mistakes was to put up VAT to 20% at the start of the year. While the historical evidence is that recoveries from recessions caused by a crisis in the financial sector tend to be slow, tax increases and spending cuts are having an effect."This is according to CIPD chief economist John Philpott, quoted in an article in yesterday's edition of the Observer (Sunday 24 July 2011). Philpott was quoted in a piece assessing Chancellor George Osborne's rigid determination to stick with his plan 'A' for cutting the budget deficit - an approach referred to by some as "Osbornomics" - despite ongoing weak economic growth.
The Chancellor's commitment to "Osbornomics" is likely to be put to the test tomorrow (Tuesday 26 July 2011), with the publication of data on economic growth for the second quarter of 2011. Figures for the first quarter of 2011 came in lower than many analysts expected, with growth in gross domestic product (GDP) running at 0.5%. Many economic commentators expect growth in the second quarter to be weaker still, with a return to negative growth possible, but not necessarily probable.
The Telegraph's Emma Rowley sums up how much is riding on tomorrow's GDP
data release:
Osborne knows the most important figure to be released this summer will be the Q2 growth figure.The Bank of England Monetary Policy Committee (MPC) expects UK GDP growth to weaken further in the current (third) quarter of 2011. The minutes of the MPC's July 2011 meeting - published last week - say:
Indicators had pointed towards continued modest underlying UK GDP growth in the second quarter and, more tentatively, to some softening in the outlook for the third quarter.
- The image used on this page was sourced from Wikimedia Commons, and is a public domain image. The author is the United States Federal Government.
- XpertHR economic commentary July 2011: What can we expect from the second half of 2011?
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