Osborne braced for deeper economic gloom with last-quarter figures
A rising number of Britain’s families say they will struggle to make ends meet this year and will cut back on spending, as the chancellor, George Osborne, braces himself for news that the economy slid into reverse in the final quarter of 2011.
The government is hoping that the Queen’s diamond jubilee and the summer Olympics will spread a party mood across the nation. But with unemployment rising and inflation running at twice the rate of pay growth, more than 32% of consumers plan to cut back on spending in the next 12 months, according to a new survey for the Resolution Foundation by pollsters Ipsos Mori. That compares with less than a fifth when the survey was last carried out in October.
More than one in five of those surveyed, 23%, expect their financial situation to deteriorate over the next 12 months, compared with just 15% in October, underlining the growing pessimism that has taken hold since the eurozone crisis exploded in the autumn.
Gavin Kelly, chief executive of the Resolution Foundation thinktank, said: “Families that are already hard-pressed are preparing for yet another very tough year ahead. Given this gloomy backdrop, it’s a real worry that a new round of cuts to tax credits planned for April will further dampen the spending power of low- to middle-income families.”
He added that weaker spending from consumers would depress growth at a time when export demand from Britain’s largest market in Europe was likely to be declining. “The longer households cut back on spending, the longer it will be before we see real economic recovery.”
Official GDP figures due to be released on Wednesday will show whether the economy expanded or contracted in the fourth quarter of 2011, as the debt crisis in the eurozone sapped confidence and depressed demand for exports. Many City analysts – and the independent Office for Budget Responsibility – are expecting a negative number, which could mark the start of a recession. “We’re looking for a small contraction. I think most people are,” said Peter Dixon, an economist at Commerzbank.
Howard Archer, of consultancy IHS Global Insight, said: “Whatever the fourth quarter outcome, it is evident that the economy is struggling markedly at the moment and is in serious danger of slipping back into modest recession.”
The chancellor has conceded that the economic environment has darkened, saying last week: “You don’t have to tell me that the economic environment is very difficult for Britain, and indeed for the whole world.”
But Labour will seize on weak growth as evidence that the coalition’s policies have clobbered the economy. Rachel Reeves, the shadow chief secretary to the Treasury, said: “2011 should have been the year when we secured economic recovery and saw unemployment continuing to fall. Instead we have seen a year of stagnation and more people out of work than since the last Conservative government in 1992.”
The chancellor will fly to Brussels this week to meet fellow European finance ministers as they battle to shore up the single currency. Financial markets have become increasingly confident that the euro can muddle through after the European Central Bank lent more than €500bn in emergency cash to struggling banks.
Resolution’s research is part of a larger report, Squeezed Britain, detailing the pressures on low- and middle-income households. It will be launched tomorrow at an event with shadow work and pensions secretary Liam Byrne, and the Liberal Democrat MP and former chief secretary David Laws.
The latest inflation figures, released last week, fell to a six-month low of 4.2% in November, raising hopes that the squeeze on households’ buying power will start to ease in the coming months. Ben Broadbent, an independent member of the Bank of England’s interest rate-setting monetary policy committee, said on Friday that the economy was “broadly flat”, with the biggest risks coming “overwhelmingly from continental Europe”.