Forget Cameron’s Europe speech – today’s GDP figures are the real game changer

25th January, 2013 11:48 am

Was Cameron’s Europe speech really just two days ago? At the time many on the right (and indeed some on the left) saw it a a probable game changing moment in this Parliament, perhaps one to rival Osborne’s horrorshow budget of 2012 and put the Tories back on course to win in 2015. Despite being annoyed at Ed Miliband for his poor performance on Wednesday, I never really believed we were seeing a parliament defining moment (as I said on Wednesday morning “he has forgotten the golden rule of politics – that the public rarely share the obsessions of politicians”).

But today I believe we may be seeing a real  game changing moment. The economy slumping back into decline again after the false hope of the last quarter’s growth raises the distinct possibility of Britain struggling through an unprecedented triple-dip recession. Each time the economy seems to recover the Tories crow that their plan is working, and yet each time the economy falls back their false confidence is recalled and their credibility is ground further into the dust. Only a few months ago Cameron was telling the British people that “the good news will keep coming”. How typically, predictably and depressingly short termist and wrong of him.

And yet this time it’s not just the bungled economic recovery that’s a problem for the Tories, it’s the presentational issues too. Perhaps most damaging is Nick Clegg’s decision to give an interview – released on the morning that the growth figures came out – saying that he thought cutting infrastructure spending had been a mistake. Therefore on the day that growth is the big issue, Clegg admits that sucking growth out of the economy was a mistake. That effectively endorses Labour’s critique of Osborne’s early growth wrecking spending cuts. Smooth work there Nick.

Similarly the imagery of Osborne, Cameron and Boris Johnson having a whale of a time in the uber-exclusive surroundings of Davos is poor “optics” to say the least for the government. Osborne and Cameron will have known when they were photographed in a swish pizzeria last night that the economic news coming out this morning would be grim. But they did it anyway.

Two days ago the country applauded the deft touch the Prime Minister showed in uniting his party on Europe. But the next election was never going to be about Europe – not even the most deluded fetishist of the Eurosceptic right would think so. But the election will be about the economy, which – thanks to George Osborne – is tanking.

We may well look back on this week as one on which the 2015 election turned, but it won’t be over Wednesday’s Europe speech, it’ll be over today’s confirmation that the economy has slipped backwards again. The Tories have staked the whole farm on the economy – and right now, it’s looking like they’ve lost.

Value our free and unique service?

LabourList has more readers than ever before - but we need your support. Our dedicated coverage of Labour's policies and personalities, internal debates, selections and elections relies on donations from our readers.

If you can support LabourList’s unique and free service then please click here.

To report anything from the comment section, please e-mail [email protected]
  • When the Coalition collapses on its gravestone will be chiselled, ‘20% Vat’

  • aracataca

    These are truly desperate figures- If we carry on like this the country faces absolute ruin.

    • robertcp

      Yes, the Con Dems are in trouble if the economy does not start growing soon. Expansionary contraction turned out to be a load of baloney! It was proven by Canada in the 1990s apparently but a booming USA across the border might have helped. Duh!

  • Monkey_Bach

    You don’t need a crystal ball to foresee that the next three most likely events stemming from George Osborne’s “plan” will be an official triple dip recession, followed by loss of the country’s triple A creditworthiness, followed by a tide of rising unemployment. What once could be considered as doctrinaire incompetence now verges on the potentially disastrous. Eeek.

    • aracataca

      Correct Monkey. Loss of triple A credit rating could lead to a rise in interest rates the very thing austerity is intended to avoid and for a picture of what the consequences of a rise in interest rates might look like please refer to current day Greece, Spain, Portugal or Ireland. We’re heading for catastrophe and must change course now.

      • Monkey_Bach

        I believe that John Maynard Keynes referred to our current economic situation as a “death spiral”. I never thought I would live long enough to see such a thing. Yet here we are. Well on our way to another devaluation of the currency. Eeek.

      • jaime taurosangastre candelas

        The interest rates would probably have risen 2 years ago if Labour formed a Government in 2010, based upon what the markets “then” perceived of a slower, and shallower approach to cutting the deficit, as was (still is?) Labour policy. The markets wanted a deep and fast approach.

        Of course, the markets follow the idiocy of crowds (and increasingly, poorly constructed or completely opaque algorithms encoded into the computers) . Whether a rise in rates in 2010 would have left us worse off in early 2013 than keeping lower rates, but now crashing faster, is too complex for me to guess at.

        • aracataca

          Of course Sweden has a higher level of public spending than the UK 55.2 % of GDP as against 43.2 % of GDP in the UK yet the price of 10 year government gilts is lower in Sweden than it is in the UK 2.08% (UK) and 1.85% (Sweden). This suggests that there is no direct correlation between the level of government spending as a proportion of GDP and government bond yields. Of course any suggestion that the theory that higher government spending (as a proportion of GDP) leads to higher interest rates is a load of pony made up by right-wing dogmatists is, and must remain, pure speculation.

          In fact the current ‘panic’ on the markets is that bond yields are going to collapse hence the current rise in equity markets as money moves from corporate and government bonds into equities while banks are swamped with ultra cheap money through quantitative easing.

          It is year after year of zero growth that is going to do for us in the end.

          • jaime taurosangastre candelas

            Have a look at the price of Swedish debt over the last 10 years (I get my data from ). An average of 6.7% when volume adjusted. For the trailing ten years before that, over 12%.

            Even better, a comparison of the same 10 year bonds since May 2010. Currently they are lower than the UK, but for 26 of 32 months, higher than the UK, and the trend line using Excel over the last 6 months is negative in comparison with the UK.

            I do hope you do not make your personal long-term investment decisions based on a single spot-price.

          • aracataca

            Will do JT but please note UK 10 year government bond yields have risen sharply in recent weeks to 2.08 %. This is historically low but the recent rise has been in the order of 25% ie from 1.67% to 2.08%. This rise has little to do with the size of government debt (but of course borrowing is currently rising) and much more to do with the fact of a nil growth rate in the UK (imho). If contraction continues (as seems likely given current government policy) then the price of that debt is being devalued. At some point the market is going to pull the plug on the purchase of UK government bonds and interest rate rises will become inevitable. In short we have to have growth and pretty quickly.

          • jaime taurosangastre candelas

            Bill, the reality is not that we disagree, but merely have different perspectives on “timelines”. I do not much note a rise of 0.41% in a few weeks, and it is only 25% (a “startling” figure”) if you measure it against a very low baseline. A rise of 0.41% from 6% to 6.41% is hardly the same. In a few weeks, it might easily be down again, not based on anything happening in the UK, but perhaps some crisis in Japan or in one of the BRICs causing money to come flooding back to the UK again. It is like the chirping of the birds, it means little.

            What does mean a lot (to me, anyway) is finding a correlation between the ideological constancy of a Government which can be measured over an electoral cycle, and whether a global market is either wanting and supporting that, or hating that. You can play it both ways, investing “for” or “against”. You do not even have to share the political outlook, merely to identify what it is, and what the market wants.

            As for your wider point, when you have two factors such as the US debt ceiling debate and the increasing realisation that China’s gross growth is over (both ten times the size of the UK’s economy) and the never-ending worries about the stupid Euro, so long as the UK continues on a “steady and predictable” course, the UK bonds will remain stable. You should not look at bonds against equities, but bonds against bonds. Over 65% of bond investments can only be in bonds, by the rules of their owners, so the money bounces from bond to bond, not bond to equity.

          • aracataca

            10 year government bond yields have risen from 1.67% to 2.08% suggesting that they are more difficult to sell while the FTSE has risen from 5600 to 6250 in the corresponding period ( 3 months)- IMHO there is a correlation between the 2 trends. I don’t believe that overall UK growth will be positive this year – maybe you do? If this trend continues then UK 10 year gilts could be at 4%-5% by year end and with austerity leading to declining living standards this in itself could be fairly ruinous for lots of people. The laughing gnomes of Davos have behaved totally irresponsibly and with a careless disregard for the lives of the less fortunate.

          • jaime taurosangastre candelas


            you may be correct, but again you may not. There is of course some correlation, but that is well known.

            I find your last sentence interesting. I look at 2 papers (the Guardian and the Telegraph, because they appear to me to give two equally polarised opinions, and I make my judgement somewhere between). But it is interesting how in the comments below political articles in both papers it would appear that “the nutters are out in force”. This concept of some small cabal of super-rich people directing the work of governments (for their own further enrichment) appears popular with the more “unhinged” commenters in both papers. The reality is that the market is almost entirely affected by the institutional investments of pension funds acting on behalf of multiple millions of ordinary people.

          • aracataca

            ‘The market is almost entirely affected by the institutional investments of pension funds’……… who are pulling their money out of bonds and gilts (particularly UK government gilts) and putting it into equities. Since 2008 we have had a boom in the bond (particularly the corporate bond) market. Investors have realised that this cannot last-hence the shift into equities. Given that a downgrade is now inevitable and the ongoing shift to equities I predict that the UK 10 year government bond yield will be at 4% or thereabouts by the end of the year. (6% is the bailout rate). This is in large part because we will have no economic growth whatsoever in 2013 and interest rates will have started to rise. Economic calamity awaits.

    • postageincluded

      I suspect that losing the AAA would sink them regardless of what happens afterwards. Even if a miraculous recovery followed. People would ask why they had to suffer in the name of something that made no difference. It was a similar question (why did we suffer to stay in the ERM?) that sank Major….

      • Alexwilliamz

        Surely downgrading should trigger a general election, it would be a final judgement of failure of gvt policy and since their entire raisin d’être was to ‘deal’ with the debt, protect the triple a rating and drag us out of recession. They have done none, while dragging through goodness knows how many reforms to things people never wanted. The nation should be given the chance to change gvt before it is too late. Plan a has failed. New balls please.

  • I think you need to get more inside these people’s heads Mark…for these people eating in a pizzeria, no matter how swish you think it is, would seem like the most common thing they could do in Davos…if there had been a swish fish and chip shop I’m sure we would have seen them queuing outside. They haven’t a clue. After all this time, we still get leaders who have no real experience of any kind of struggle in life. Has any of them said anything about the desperately sad suicides occurring from the DWP assessments?


    • aracataca

      The only senior politician that I know of who has experience of the DWP as a customer (so to speak) is Yvette Cooper. The recently selected Labour candidate for Great Yarmouth also appears to know what a daily struggle to get by looks like. The Tories and their sycophantic fellow travellers in the Fib Dems are completely clueless about such matters.

    • robertcp

      I agree with you about DWP assessments but why shouldn’t the Prime Minister go to a pizzeria?

  • Gabrielle

    I wonder if Cameron’s game plan was to deliver a barnstorming speech, then get his boundary ‘reforms’ (gerrymandering more like) through, then call an early election.

    It’s all gone a bit ‘Pete Tong’ for him, hasn’t it?

  • Gabrielle

    I suspect Cameron might have had an early surprise election in mind, deciding to strike while the iron was hot, because

    – people would still be enamoured with his Referendum speech,
    – consent for his new constituencies would be voted through that might give him an extra 20 seats,
    – most importantly, get an election in before the **** really hit the fan economically,
    – and before time ran out on the ‘blame Labour’ shtick.

  • We should really try to force Osborne out. As the architect of a triple dip recession he has been shown to be completely incompetent and with Clegg challenging the way the government has performed economically and the range of experts who are clamouring for a Plan B this is the right time to pile on the pressure. Mass email campaigning such as what has been done by organisations like 38 degrees would panic the the government MP’s and they would be pile pressure on the hapless Cameron to act.

    What do you think?

  • rekrab
    • jaime taurosangastre candelas

      Hello Derek. Happy “Burns Night” to you. You’ll recall that it was never marked in my father’s house, as he is one of those Scots who hates the reality of Scotland, so I have no heritage in marking the day. But I appreciate you’ll be very happy tonight.

      Here’s something for you.

      Let’s not forget that most poor white music in the USA has its’ heritage in the music of Ireland and Scotland that the immigrants brought with them.

      Did your boys get you that Woody Guthrie CD for Christmas?

      • rekrab

        Jaime, a guid Burns night to you.

        Yeah, got the CD, really enjoying the lyrics and sounds (GREATEST HITS) Thanks!

        A little plug for one of the boys, on the drum kit, doing one of his likeable band covers.


LabourList Daily Email

Everything Labour. Every weekday morning

Share with your friends