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What if the Q2 growth figures are negative?

July 25th, 2011

Is Glover right: the coalition could be fighting for its life?

One of the best Monday morning columns today is by Julian Glover in the Guardian in which he ponders the consequences if tomorrow’s Q2 growth figures are negative.

He writes: “….Everything else, more or less, is survivable: but the coalition could not outlast a collapse of confidence in its economic plans. And with ..the figures confidence will be shaken again. Climbing food and fuel prices, a domestic recovery made of jelly, a eurozone bond market prone to bouts of nervous collapse, a cooling-off of Asian growth and a US political system maniacally intent on blowing up the dollar are the worst companions to the government’s bitter programme of tax rises and spending cuts….

Certainly the coalition would face a testing time because the glue that holds it together is the joint approach on deficit reduction. It was the need to provide stable government after the inconclusive general election that brought the blues and yellows together and both will be judged by the success or failure of the policies.

Glover goes on: “…This.. leaves the government trying to sell a tricky counterfactual message: “things are horrible, and worse than we warned, but they would be even nastier if we did anything else”. Maybe the eurozone crisis will persuade the public that cuts are justified by real fears and real overspending. But in bleak times, when living standards have been static or falling for five years and when real disposable income has dropped by 0.8% in the last quarter, a promise of bread and water today to be followed by gruel tomorrow is going to be a tough sell…

…Pain today, pain tomorrow and maybe pain for a very long time. There’s a reason Cameron seemed sanguine about phone hacking. Inside government there’s a much, much bigger worry. Phone hacking won’t sink him. The economy could.

We shall see.

@MikeSmithsonPB