The Chancellor can finally breathe a small sigh of relief following the release of today's GDP figures. The first estimate shows the UK managed to narrowly escape the much dreaded triple dip recession as the economy expanded by 0.3 per cent in the first quarter of the year.
Albeit small, this growth offers the government some respite in the midst of mounting criticism of austerity following the recent tranche of bad news for the economy. Just last week, unemployment rose by 70,000 to 2.56million, youth unemployment rose closer to the million mark and the economy was downgraded by yet another credit agency.
Although much of the build-up to this release of growth figures has centred on whether or not the UK will slip into triple dip recession, it was always expected that any change would be marginal in either direction (growth or contraction). The importance of these figures isn't whether or not we have entered a triple dip, but that the UK economy is stuck in a rut. Real GDP remains 2.6 per cent below its peak level five years ago and has increased by just 0.4 per cent over the last two and a half years. After five years, this is disappointing news not only for the government but for businesses and consumers, who are experiencing a continued squeeze on their living standards.
Instead of the coalition switching its fiscal stance over the past three years, the government has opted to stick with its strategy: continued public spending cuts to tackle the UK's debt 'problem' - the government's perceived cause of the economic crisis - and loose monetary policy to kick-start the economy. Even in the face of calls from previous supporters like the IMF for a change of policy and evidence that the plan is not working even on its own terms - ONS data show borrowing in 2012/13 is almost identical to borrowing in 2011/12 - the Chancellor remains confident in his plan.
The IMF and Bill Gross (head of the Pimco, the world's largest bond investor), once supporters of austerity, beg to differ, having recently turned into its most eminent critics. Last week, the IMF explicitly questioned the effectiveness of the government's continued programme of austerity - catapulting the Chancellor and his austerity plan into the global limelight. Olivier Blanchard, the chief economist, said the UK was "playing with fire" and the IMF's twice yearly publication the World Economic Outlook states the UK should consider greater "flexibility" within its deficit reduction plan. The IMF is set to arrive next month for its annual inspection, and based on today's figures Osborne can feel a bit more relaxed knowing the economy hasn't worsened in the first quarter.
In the meantime, anticipation has been building around the arrival of Mark Carney, the incoming governor of the Bank of England. There has been much speculation about his potential influence on the economy; indeed, it sometimes seems all our hopes for an economic recovery are being placed on his shoulders. Yet, it is not clear what he will do that the current Monetary Policy Committee could not already be doing.
Although today's data suggest things may be looking up a bit for the Chancellor, the UK is slowly losing allies in the defence of its austerity programme. The underlying economy is still struggling five years after it first went into recession. If Mark Carney cannot deliver a real boost through monetary policy and the Chancellor continues to proceed with the same fiscal strategy, the UK could remain stuck in this long spell of little to no growth for some time.