James Plunkett

With the Chancellor’s autumn statement due next Tuesday, we're all talking about growth. The ECB and Bank of England now say the UK economy is set to grow at less than half the rate the OBR forecast back in March. That makes it all but certain that George Osborne will announce dramatic downward revisions to UK forecasts when he stands up in parliament next week. But before all the fighting about Plan As and Bs reaches fever pitch, it’s worth asking what the next decade looked like under the previous, more optimistic growth projections. The answer isn’t pretty and it helps highlight one major question that’s rarely asked in our debate about GDP: what kind of growth are we after? The chart below neatly sums up the problem.

Next Tuesday, the ONS will release initial estimates of second quarter UK GDP growth. It may be a slight exaggeration to call it a ‘make or break’ moment for the Chancellor but ‘make or brake’ might not be a bad description. After six months of no growth, another three months of flat GDP would strengthen calls to slow his current strategy. Plenty of forecasters are predicting gloom. The graph below, which readers may have seen in some form before, compares this recession with its predecessors. This was the sharpest, deepest downturn in living memory; a similarly strong recovery is needed. So, what will the chancellor hope to see next Tuesday?

New inflation stats are out tomorrow and they’re expected to show further rises in CPI and RPI.  Aside from their brief peak in 2008, headline rates of inflation are now at their highest levels for 19 years.  That’s prompting more discussion about the way rising prices are playing out for Britain’s households, from a nice graphic in today’s Times (£) to a new report due out tomorrow from the IFS.  But one implication of today’s higher inflation environment is receiving less attention – the impact of rising prices on work incentives. Inflation and work incentives aren’t often mentioned in the same breath.

There’s been much debate on these pages about the political implications of higher inflation. Ironically, this morning’s news of record food prices could relieve the pressure on the Bank of England Governor. His argument for caution when it comes to a rate rise is based on the claim that UK inflation is now being driven by events beyond the MPC’s control. Today’s figures reinforce that case, showing that global commodity prices remain a key driver of the rising cost of living in Britain’s households. The same argument doesn’t really work for the Chancellor, whose remit isn’t just to keep headline inflation down, but also to help households cope with the kind of inflation we’re now seeing – whatever its cause.

GDP growth figures have become the barometer of choice for commentators trying to tell the political weather – a good measure of how the public will eventually fall in the faceoff between Osborne and Balls. The story goes that a return to sustained growth will mean a return to rising living standards.  That means a vindication of the government’s position, and a victory for the Chancellor. As a simple story, that makes sense if the pressures now facing Britain’s households are straightforwardly growth-related – if, in other words, we’re in a post-recession hangover that will vanish when growth returns. But there’s now mounting evidence of a deeper problem for living standards in the UK economy. Take the chart below.