George Osborne is responding to the horrible Q4 GDP release in the only way he knows how - by imagining himself as the man standing in the gap left by God, as Ian Paisley once described his role.
Osborne – who has this week been discussing financial issues at the World Economic Forum in Davos – told the BBC's The Politics Show: "If on Monday I went to parliament and got up in the dispatch box in the House of Commons and said I am abandoning the deficit reduction plan that Britain set out last year, what do you think the reaction would be? Within minutes, Britain would be in financial turmoil. I am not prepared to let that happen."
I’m sure the markets would indeed be surprised if he got up in the dispatch box rather than standing at it, but let’s let that pass. So the government’s arguments are now: it’s not us, it’s the snow, but our policy is absolutely vital and the worse it gets the better it must be. And we’re going to offer a “budget for growth”, but we’re not going to do anything for another two months.
Right. The problem, though, is that now things really are worse than we thought. Back in July, we noted that the Government’s economic forecasts assume that revenues from stamp duty return to bubble levels by 2013. Similarly, their expectations of recovery require a significant contribution to GDP from the construction sector. And the construction sector was the stand-out disaster of Q4.
The Tory narrative relies on this, up to a point - bad weather can always disrupt construction, and it snowed, and therefore it’s not a problem. (How the finance & business services sector managed to record a 0.7% drop in output is another matter.) But the problems are broader. Two weeks ago, the ONS’s November figures showed a 1.5% drop in construction output for that month alone. Housing market activity is plunging again. And unemployment in the construction trades is going up.
With services struggling, construction in the toilet, and the public sector contracting, that leaves the consumer sector and manufacturing. Industry is currently the only sector that is contributing net growth. With real wages falling, it’s very unlikely that we’ll see anything from the consumer or the housing sector. So where do we go from here?