The chances of a double-dip recession are growing every day, and are now more than 50-50 likely.   The ONS has just announced that the 2008-9 meltdown drained £22bn out of the economy, forced up unemployment by hundreds of thousands, and with a 6.4% slump in UK output was far worse than 5.3% in the Eurozone and 3.8% in the US.   The 2.6% pre-budget growth forecast for 2011 was cut post-budget by the OBR to 2.3%, and now has been lowered further still by the IMF to just 2.1%.   The faltering rise in UK output in the spring seems to have halted, and the rise in house prices has petered out or even fallen.   The key engines of growth – household spending (even before the rise in VAT) and exports – are both down.   So what is Osborne’s response?

On top of all this, net bank lending continues to be negative.   Alistair Darling lent hundreds of billions of pounds to the banks so that they could onward lend to private businesses at the level, as Gordon Brown said at the time, before the 2007 downturn (i.e. an M4 money supply rate growing at 20% a year).   That lending is now at the lowest rate since records began, and clearly shows the banks are pulling down the hatches ready for a renewed and deeper recession whilst pocketing the enormous public subsidies (thank you, taxpayer) to tide them over the worst.

The Tories are now hoist on their own petard.   They and their quisling OBR have been asserting that the space created by the vanishing public sector jobs will be more than filled by an upsurge in private sector job creation.   Don’t they get the basic Keynesian insight that business doesn’t invest unless the level of demand indicates the prospect of profitability?   It is a deep irony that with the private sector flat or falling back, the Tories are now determined to decimate the one element of relative buoyancy in the economy on which the private sector depends for 40% of its contracts.   The public sector is about to be hit not only by a big rise in VAT, but also by a 25% cut in the Government’s £650bn a year public expenditure, with possible cuts in some cases up to 40%.   If this isn’t cutting off your nose to spite your face, I don’t know what is.

So what is plan B?   Slasher Osborne doesn’t have one because he thinks it’s unnecessary.   But simply concentrating on an imagined supply side revival whilst at the same time hammering the demand side in both the public and private sectors is not a recipe for recovery, but a sure sign of a double dip.

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