Leader: Cold front of reality takes wind out of Osborne’s sails

CHANCELLOR George Osborne’s task today, to lighten the gloom and announce a series of measures which will keep the British economy stuttering along a growth path, was made next to impossible yesterday.

The great weight of the Organisation for Economic Development and Cooperation (OECD) came crashing down on the Treasury, warning that the UK economy is, in all probability, in recession.

True, the forecast is for a very mild contraction of 0.18 per cent between October this year and March of next. It is also much less than the 1.4 per cent negative growth the OECD predicts for the eurozone. But six months of negative growth is a recession nonetheless.

Mr Osborne may protest that this is a prediction drawn up before he has made his announcements. But with the best will in the world the economic stimulus he evidently intends to provide – the support for additional bank lending and the extra spending on infrastructure projects financed by pension funds – is a small umbrella against the gale now blowing from the eurozone. Not only are the measures relatively small, they are also unlikely to have any real impact on the economy until well into next year and thus come too late to prevent this double-dip recession.

That uncertainty over the eurozone is now a real dampener on the British economy, which of course includes Scotland, is evident from the “State of the Economy” briefing issued yesterday by Scottish government economists. They make a brave fist of an attempt to show the Scottish economy is still in recovery mode, but the report is permeated with so many caveats and health warnings that it could be summed up in a gloomy sentence: if Europe goes into recession, then so will Scotland and it looks pretty likely that is what is happening.

This seems to be reflected in the words from finance secretary John Swinney. Although the usual demands that Mr Osborne implements a “Plan MacB” were there, the aggression level was lower. The habitual cocky “our unemployment is much less than your unemployment” tone was also reduced, perhaps in recognition of the reality, signalled by the OECD, that for Scotland, economic events in Europe have much bigger implications than anything the Chancellor will announce today.

The report starkly records that despite some impressive gains by manufacturing exporters, Scotland’s economy shows a dismal growth rate of just 0.3 per cent in the first half of this year, an uptick likely to be cancelled out by a downbeat second half.

A comforting crumb is that Scottish employment, compared to the rest of the UK, is higher, offering some hope the unemployment fall-out from a double-dip recession may be less than is feared. And for Mr Osborne, the message from the OECD is that deficit-reduction may be important, but growth promotion is just as significant.