The Chancellor Survives a Difficult Month

April saw a raft of economic news, but ended with two small rays of light for Mr Osborne.

The Government’s chosen economic course, Plan A for Austerity, has not been receiving much good publicity of late. An economics paper by two Harvard economists that was seen as academic backing for austerity was found to contain significant errors.

At much the same time, the International Monetary Fund’s chief economist suggested that it may be time for the UK to relax its tight budgetary plans. On cue, unemployment figures rose by 70,000, taking the level to 7.9% of the labour force. Just to add to the Chancellor’s woes, a second credit-rating agency, Moody’s, stripped the UK of its AAA rating.

Towards the end of the month Mr Osborne had two pieces of good news.

The Office for National Statistics (ONS) announced that in the first quarter of 2013 the UK economy grew by 0.3%, reversing the 0.3% decline in the final quarter of last year. As a result, Mr Osborne avoided the much talked-about triple dip recession that had been forecast in some quarters.

Chart of UK Growth Q1 2008 to Q1 2013
The UK shows some light after avoiding a triple-dip recession

The falling borrowing and positive economic growth figures do not yet mean the UK economy has returned to health. The government deficit is stuck at close to 8% of GDP – it will be virtually unchanged again in 2013/14 – and in the words of the ONS the economy “has been broadly flat over the last 18 months.” The UK’s economic peak was five years ago and the latest data show that we are still 2.6% below that level today.

The stock market took this all in its stride, and was little changed over April. Whether that reflects optimism about UK plc’s future or the impact of loose global monetary policy is open to debate.