Cameron Urged to Prepare New Growth Push as Slump Deepens
Prime Minister David Cameron faced renewed pressure to do more to spur the economy after figures showed Britain is in a deeper recession than first estimated.
His political opponents said the slump is the result of too much austerity, not the euro-region crisis. Business lobbies and economists said the downturn bodes ill for investment and may make it harder to cut the deficit as tax revenue weakens.
Cameron is losing voter support as Britain struggles to emerge from what his spokesman called “the worst financial and debt crisis of our lifetime.” The economy’s 0.3 percent contraction in the first quarter -- more than the 0.2 percent initially estimated -- means output has grown just 0.3 percent since the Conservative-led government took office two years ago.
“Cameron is coming under pressure because his strategy isn’t working,” said Patrick Dunleavy, a professor of politics at the London School of Economics.
Cameron and Chancellor of the Exchequer George Osborne have staked their reputations on creating jobs and investment in the private sector to replace public spending. The Labour opposition said the policy has failed and urged the government to switch course.
“This is no-growth government with its head in the sand,” Chuka Umunna, a Labour lawmaker who speaks on industrial policy, told Parliament in London. “They blame businesses, they blame the people who work in them and now they seek to blame the euro zone, when countries like Germany and France are not in recession and we are.”
Those attacks have begun resonating with voters, who inflicted heavy losses on the Conservatives and their Liberal Democrat coalition partners in local-authority elections earlier this month.
Cameron has fallen behind Labour leader Ed Miliband in public approval for the first time, a ComRes Ltd. poll published on May 20 showed. Cameron and Osborne have also lost their advantage on the question of who is most trusted to run the economy. They are now neck-and-neck with Miliband and his finance spokesman, Ed Balls.
Budget cuts, a squeeze on households as inflation outpaces wages and turmoil in the euro region -- the biggest market for British goods -- are weighing on an economy that has recovered barely half of the output lost in the recession of 2008-2009.
Yesterday’s figures underline the “very tough economic situation” facing the U.K., Cameron’s spokesman, Steve Field, told reporters. “If Europe doesn’t grow, it’s hard to avoid recession. We can’t be immune to what is happening on our doorstep.”
The report capped a week of poor economic news for the government. A jump in state borrowing in April raised doubts that the government can meet its goal of cutting a deficit of more than 8 percent of gross domestic product to below 6 percent this year.
Both the Conservatives and Labour claim the support of the International Monetary Fund, which this week praised the government for restoring credibility to the public finances with its plan to erase the structural deficit by 2017 while warning that tax cuts may be needed unless the economy strengthens.
Deputy Prime Minister Nick Clegg signaled a new emphasis on growth by saying the government wanted to use its balance sheet to underwrite a “massive” increase in housing and infrastructure projects. He denied it amounted to a “Plan B” for the economy.
Some economists said record-low government borrowing costs reflect the search for relative safety amid the euro-region crisis and mask the threat from weak growth. The 10-year gilt yield yesterday tumbled as low as 1.738 percent, compared with rates of 6.1 percent in Spain and 5.5 percent in Italy.
“The persistence of above-target inflation will see the U.K. rumbled and its safe-haven status recognized as not being justified by actual facts.” said Marc Ostwald, a bond strategist at Monument Derivatives in London.
Ostwald also pointed to the “whopping” 1.6 percent increase in government spending in yesterday’s figures.
“It is very worrying,” Conservative lawmaker Douglas Carswell said in a telephone interview. “We are not cutting public spending. We are not fixing the problem of unwinding a 30-year artificial credit bubble.”
A report by McKinsey Global Institute in January that aggregated the debts of the household, government, financial and corporate sectors in 10 major economies showed total indebtedness in the U.K. is more than five times GDP, above Spain and the U.S.
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