Recession

Most people expected this morning's official GDP statistics to show that the economy has come out of recession.  But they didn't.  In fact, they had the economy shrinking by 0.4 percent in the third quarter of this year.  So the downturn continues – and it's the longest on record. We've always maintained on Coffee House that coming out of recession won't do much good for Brown.  But, obviously, staying stuck in one has far more dangerous implications for him (not to mention the country).  Obviously, the government won't be able to deploy the green shoots strategy now.  But with other major economies already out of recession, they'll struggle to deploy it in future.  You imagine the Tories will have a field day with this.

Gordon Brown has just told the House of Commons that he is offering Stormont a financial settlement to increase funds for policing and judicial administration in Northern Ireland. Crucially, future emergency security costs in future will be met by the Treasury, and elements of the complicated settlement will stand until at least 2014.  Northern Ireland has been badly hit by the recession. Power sharing became increasingly fraught as arguments escalated over budget allocations and the timing of judicial devolution. It is not an exaggeration to suggest that the recent escalation of violence might be related to rising unemployment and open political tension.

What is the true price of Gordon Brown’s economic incompetence and inept bank regulation? The soaring national debt is one. And if you own a mortgage, you’ll find that you’re paying another. The gulf between the Bank of England base rate and the average mortgage rate is now at a huge high – as banks rip off their customers, trying to fill the hole in their balance sheets. This is an under-discussed topic. The “action we have taken” (a phrase Brown uses to try to lay claim to the Bank of England’s base rate reduction) would have a far greater effect on the economy if the UK banking system was not (still) so badly broken. The below graph, from Citi, shows spreads (ie, gap between base rate and retail rate) on key UK mortgages from 1995.

Well, that’s what he claims anyway. Brown’s extended interview on the Today programme was an exercise in deflecting blame (and the Sun coming out for Cameron) – ‘none of this would have happened if people had listened to me because, you see, I saw it all coming’ was his refrain. This exchange with Jim Naughtie was particularly telling: “JN: Let me take you back to ‘markets without morality’, which was in your speech and you’ve repeated it now. When did you decide that bankers were being greedy and excessive in their demands? GB: Well Jim, you know, I’ve always been of the view that we needed a better global financial supervisory system.

An interesting spat is just breaking out over cuts. The Conservatives have a leak from the working of the Budget showing detailed projections in government revenue to 2013-14 covered by all the main Sundays. This suggests income tax rising from £140bn this year to £191bn in four years' time. The Tories say this is not explained by economic growth and that the gap - £15bn - is equivalent to 3p in the basic rate of income tax. Liam Byrne is pushing back, saying Osborne is trying to "mislead the British people" (as if the government would try to do such a thing) and that the increase was accounted for “the economy returning to growth, no more, no less”.

For all his celebrity, Vince Cable is not exactly an economic genius - as those who have read his book, The Storm,  will know all to well (Specator review here). But he is seldom tested on this point, as he encounters broadcasters whose line of questioning is normally "tell us, Sage of Twickenham, what is happening." For those who don't regard him as the new Oracle and have wanted  see him put through his paces, Andrew Neil - Cable's former student - gives his old master a grilling on the BBC News Channel. In the interview, Cable gets steadily more irritated (and rumbled) and admits to having flip-flopped. The Cable phenomenon illustrates the gulf between economic and political reporting. As a business hack to went into politics, the contrast has always struck me.

Looking at the OECD’s latest economic forecast it seems that the UK—unlike the US and the Euro-Zone--will not return to growth by the end of this year. (Although, one can’t help but wonder if Brown will start heralding zero percent growth in the fourth growth). Indeed, the OECD projects that the UK economy will shrink by 4.7 percent over this year as a whole—although the worst appears to be behind us with the rate of shrinkage slowing since the last quarter of 2008 and the first quarter of this year.   As Kevin Maguire suggests today, Labour’s election strategy is likely to be that Britain is not out of the woods yet and so it is still no time for a novice.

Alistair Darling has long suggested that the original dividing line between the Tories and Labour concerned Labour spending, which will stimulate growth, versus Tory inaction. And last week, Darling was quoted in the Mail on Sunday setting out a new dividing line between the parties by framing the “debate in terms of our cuts being better than their cuts”. It is a stance that presupposes Britain is returning to growth thanks to the government’s strategy. And that is the message of an opinion piece, titled ‘The cure is working’, penned by Darling in this morning’s Guardian. Here’s the key section: ‘The Tories have opposed our measures every inch of the way, but I make no apology.

In some respects, Theresa May has delivered an effective speech on unemployment and the benefits system today.  It touches on all the tragic indicators - the 6 million people on out-of-work benefits, the high levels of youth worklessness, the shocking consequences of welfare ghettoes etc. - and re-states, in no uncertain terms, the Tories' commitment to welfare reform.  She even partially responds to those critics who thought she'd been drafted into the shadow welfare role to be "softer" on single mums than Labour, by instead attacking the state for encouraging lone parents "not to bother trying to work until their youngest child was sixteen".