Figures published this morning showed that the economy shrank by 0.2 per cent in the last three months of 2011.
This was what the independent forecasters had predicted - and they say growth will recover in the second half of the year - but there is no denying these are disappointing figures.
Political debate on growth figures always generates more heat than light - if the figures are good, the Government claims the credit; if they’re bad the Opposition says it’s all the Government’s fault. The truth, which no-one likes to admit, is that Government policy is only one of the things that influences how well our economy does – the international climate is more important. What we should look at is how our economy is doing relative to others. On that basis, we are projected to do better than most of our European neighbours this year but not as well as many developing economies (incidentally, on the same basis the fact that we had a recession under the last Labour Government wasn’t their fault but the fact that our recession was deeper than many of our competitors can be put at their door).
The real question is what should we do in response to these figures. Ed Miliband says the Government shouldn’t be cutting so fast - in other words, it should borrow more. But I think most of us know in our heart of hearts that you can’t borrow your way out of a debt crisis. If we took his advice, interest rates would go up. Just a 1% rise would mean £1,000 on the average mortgage bill. That’s hardly going to help the recovery. Times are tough but we need to hold our nerve and start living within our means.