OECD deserts Osborne, and begins to echo Labour lines on cuts

By Mark Ferguson / @markfergusonuk

The OECD – who had been considered amongst George Osborne’s staunchest of backers – have begun to turn on the chancellor as their analysts were forced to downgrade UK growth for the third time in six months. Speaking in tomorrow’s Times(£), OECD chief economist Pier Carlo Padoan says:

“I would say that you can slow down the pace over the next quarters if things turn out to be weaker than expected.”

“I would not reverse the measures I have announced because that would bear down on credibility; I would slow down the pace of spending cuts, rather … You are going in the same direction, only at a different speed.”

Essentially, Padoan is beginning to echo Labour’s line, that growth isn’t coming quickly enough, that Osborne needs a Plan B and that the cuts are being implemented too fast (and therefore are hampering the economy). Acknowledging the risks to the economy from the current levels of slow growth paired with rising inflation, he goes on to say:

“We would be in trouble in the UK and elsewhere if, in a period of slow growth and fiscal consolidation, you also have inflationary expectations getting out of control.”

The Financial Times has taken a gloomy view of the OECD’s change of heart – which they call a u-turn – saying:

“The love affair between the Treasury and the Organisation for Economic Co-operation and Development cooled on Wednesday as the chief economist of the international organisation cast doubt on the speed of Britain’s deficit reduction.”

As George Osborne’s chief international allies begin to turn against him, Barack Obama refuses to be tied to his austerity measures, and even Eric Pickles says the Tories could be in trouble, George Osborne is starting to look increasingly isolated.

Update: Ed Balls has commented on the OECD’s change of heart – and attacking Osborne’s refusal to consider a plan B that has already been drawn up in secret – saying:

“This is a very significant intervention. Even the OECD, which has traditionally supported government economic policy and George Osborne’s deficit reduction plan, is now saying the Chancellor should consider changing course.”

“As Labour has consistently argued we need more jobs and strong growth to get the deficit down in a sustainable way. But since the Conservative-led government decided to cut further and faster than any other major economy, growth has been much weaker and both unemployment and inflation higher than expected. The result is that the government is set to borrow £46 billion more than expected.”

“George Osborne’s rigid determination, despite all the evidence, to stick with deep and fast cuts and refuse to even consider a plan B does not boost his credibility, it undermines it. We know the government’s most senior civil servants have drawn up a plan B, which ministers have hastily rejected. But it’s now time George Osborne listened to wise advice, looked at what is happening to the economy and thought again about the speed and scale of his cuts.”