OECD blows huge hole in Darling’s optimism

We all remember Alistair Darling standing-up and putting forward prospectives for economioecdc growth which, charitably, could be called fanciful. Now, the OECD has rather shown those predictions up for what they were by predicting that the UK economy will contract by 4.3% in 2009 and show neutral growth in 2010.

It furthermore warns of unemployment reaching 3 million and that government debt will be £203.5 billion as opposed to the £173 billion projected. However, as reported in The Times, it lends some strength to Gordon Brown in his seemingly never-ending tussle over ‘cuts v investment’;

“the OECD sounds a wider warning to Western governments as a whole not to rush in to cutting deficits by raising taxes or through spending cuts, cautioning that too rapid action would risk choking off recovery.”

It seems to me that Brown has gained some traction with this line of attack with all but a couple of stray polls returning Labour to the mid-20% mark. No doubt he has been assisted by a seemingly counter-intuitive rise in economic confidence, something that if it continues could encourage a ‘smash n grab’ early election. The dichotomy between how people feel and how things actually are in economics always fascinates me and it is one that could, conceivably, provide this government with a small measure of salvation.

Certain aspects of the report point to the contradictory processes that often work themselves out in economics; for example, consumer spending is expected to drop by 3.4% this year and 0.3% next but households disposable incomes is expected to rise by 1.8% this year and 0.6% next. Meanwhile, wages are also expected to fall and the governments ability to shower especially families with large amounts of cash in terms of tax credits and such forth is going to be severely curtailed by the above mentioned debt.

Although peddling ‘investment’ may work for Labour in the short-term and be enough to avoid meltdown alot will depend on the economic mood music. To my mind enough people have already made up their mind that it is time for a change of government to guarantee Labour has no chance of maintaining an overall majority however a surge in economic optimism could prevent a complete wipe out.

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About darrellgoodliffe

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