Britain still in the economic danger zone

12 April 2012

The growth figures for the last quarter of 2010 were never going to impress anyone, given that snow in December meant people stayed at home when shops were relying on them to spend most money.

Nonetheless, today's preliminary Office of National Statistics estimate that the economy contracted by 0.5 per cent is news the Government did not want to hear. It followed six months of modest growth: this now looks more like a double-dip recession.

The Chancellor, George Osborne, has blamed the snow and says it is more important to stick to his guns in tackling the budget deficit. But the danger is that any prolonged contraction would hit tax revenues, wrecking the Government's deficit reduction plan.

Today's news follows a rise in inflation to 3.7 per cent, well above the Bank of England's target of two per cent. This is also explicable in terms of hikes in commodity prices but the truth is that other economies, also susceptible to those increases, are not registering the same jump in inflation. The other problem is the increase in joblessness, which public spending cuts will aggravate.

For now the Bank of England still favours low interest rates: it is hard to see how it could raise rates with the economy actually contracting.

Meanwhile in London, companies are still hiring. We are as troubled by inflation as anywhere in the UK - indeed, some costs are greater here, such as public transport - but the capital's economy is more resilient than areas more dependent on public services.

Financial institutions still gravitate towards the City, which remains an engine for growth. Ministers including Vince Cable rightly call for a more balanced economy with more emphasis on manufacturing but, for now, ministers should appreciate the contribution that London makes to the economy. The capital's private sector is the nation's greatest hope for recovery: now it matters more than ever.

Carnage in Moscow

Londoners, for whom the memories of the 7/7 bombings remain vivid, will feel a particular sympathy for the people of Moscow, where an Islamist suicide bomber from the North Caucasus killed 35 people yesterday.

One was a London-based businessman, Gordon Cousland; indeed the growth of business links between London and Moscow can be seen from the fact that two flights from Heathrow landed at the airport shortly before the bombing. This is an attack that damages economic growth and trade; indeed, that is likely to have been one of its aims. The short-term effect may be to increase Russian hostility to Chechens; in the long term, it may increase Russia's willingness to allow dissident states to secede.

Inevitably, the Russian president is angry that the airport authorities failed to heed what appear to have been warnings that an attack was likely at a Moscow airport; in the circumstances we too would be asking hard questions. But even in Heathrow, where security is tight, it is possible for visitors freely to enter the arrivals hall. The notion that we may eventually have to be searched before even entering an airport is very unappealing indeed. After Moscow's tragedy, we need to think much harder about security.

A fraught bid

The Culture Secretary, Jeremy Hunt, has taken a prudent course in indicating that he intends to refer the BSkyB bid for News Corp to the Competition Commission, yet he has softened the blow by giving the company more time to meet objections to the takeover. This is a bid that must be impartially handled, and seen as such.

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