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A very good week for George Osborne's economic strategy

By Tim Montgomerie


Jonathan Isaby noted the media tendency to under-report good news yesterday, particularly economic good news.

Ed Balls was all over the TV screens last week - barely able to hide his glee at the fall in GDP in the final quarter of 2010.

This week the economic news has been so much better.

January data for manufacturing, construction and services all rebounded leading Ben Broadbent, Senior Economist at Goldman Sachs, to predict whole economy growth of 3% in 2011.

According to the Purchasing Managers' Index the "rates of expansion in UK manufacturing new orders and employment accelerated to reach levels without precedent in the nineteen-year survey history in January, leading to near-record growth in output". British manufacturing (still the sixth largest in the world) took on more workers for the tenth successive month. Aren't we lucky we stayed out of the €urozone and have a competitive national currency to help achieve this?

The Chancellor's deficit eradication strategy has won support from three important sources in the last week:

  • Mervyn King, the Governor of the Bank of England, said: ‘The right course has been set and it is important to maintain it’. Ed Balls' attempt to say (on Sunday) that King was not really supportive of the Coalition's economic policy was, I think a major gaffe by Ed Balls (and also under-reported). Questioning the Governor's integrity in such a way was irresponsibly partisan and bad judgment on the Shadow Chancellor's part.
  • On Radio 4's Today programme the Secretary General of the OECD, Angel Gurria, commented: ‘They should stay the course. The package was an ambitious, far-reaching package. It cleared the markets in terms of its credibility. It is what was necessary – the fiscal situation in the UK absolutely requires this approach. And of course there are short-term implications, but without it there will be no medium or long-term growth’. That last sentence is particularly important. Unless we cut the deficit British business will face impossible levels of taxes and interest. Deficit reduction is the most important pro-growth policy (although not enough).
  • And, just yesterday, the IFS warned against any retreat from the Chancellor's austerity measures. The IFS' unwillingness to consider the supply-side benefits of tax reform makes them an unreliable ally, however.

Very choppy times still lie ahead but it's the big picture that counts - not the ups and downs of statistics which are often heavily revised from one month to the next.


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