Even the OECD tells Osborne to slow cuts


by Sunny Hundal    
8:30 am - May 26th 2011

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George Osborne had a lucky day yesterday in that President Obama’s visit over-shadowed the news.

Else he’d be more red-faced after one of his staunchest defenders started having second thoughts.

Today, the Times is reporting:

One of the leading advocates of George Osborne’s deficit-cutting plans has warned that they may need to be watered down in the face of disappointing growth.

The Organisation for Economic Co-operation and Development said that the Chancellor should cut spending more slowly if the muted pace of expansion seen so far this year continues.

“We see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front,” Pier Carlo Padoan, the think-tank’s chief economist and deputy secretary-general, told The Times. “We have seen that [growth numbers] are a bit weaker than expected; should that continue to be the case, there is scope for slowing the pace.”

The advice marks a shift in stance from the OECD, which has been an enthusiastic backer of Mr Osborne’s austerity plans.

The Financial Times similarly reports:

The love affair between the Treasury and the Organisation for Economic Co-operation and Development cooled on Wednesday as the chief economist of the international organisation cast doubt on the speed of Britain’s deficit reduction.

Following another downbeat assessment of the UK economy in which the Paris-based OECD revised down its predictions for UK growth, Pier Carlo Padoan, OECD chief economist and deputy general-secretary, told the Financial Times that slower growth meant there was scope to rein in the pace of deficit reduction. When the economy was slowing, Mr Padoan said, fiscal policy action should be designed to support it.

He added that the government should “be selective in the selection of spending cuts and their speed”. Monetary policy needed to be tightened to deal with inflationary pressures, and, given Britain’s difficult circumstances, its pace of deficit reduction could slow.

Odd, Mr Osborne has been so quiet lately. He refused to say anything about the high cost of borrowing in April too.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


1. Luis Enrique

would have been a bit more useful if they’d advised him not to cut so fast in the first places. The horse has bolted, OECD.

2. Richard W

They also said that the BoE should tighten policy even with high unemployment and sub-optimal growth. Fear over inflationary expectations feeding through to wage rises is apparently the reason. Policymaking just in case something happens with no evidence of it actually happening is the new normal. The OECD have been all over the place and last summers expansionary fiscal contraction is alas but a memory to all but Mr Trichet who is the last man standing who still believes.

3. George W. Potter

Given the headline, I should point out that the OECD has not told Osbourne to slow the cuts. What it’s said is that, if growth continues to be sluggish, then the pace should be slowed.

Whilst it’s certainly worth reporting on, it seems to me that this is another case of inaccurate headlines at Lib Con.

4. Luis Enrique

yes, Richard is right to highlight that. Higher VAT may or may not have significantly hurt the economy, my guess is higher mortgage and loan payments are going to do more damage. I even wonder whether the recent slowdown in household consumption might not have something to do with people anticipating higher interest rates and building buffers – mortgage overpayments are high, I seem to remember. If I had any spare cash right now, I’d certainly be thinking about paying off some mortgage rather than buying a new sofa.

5. Winston “roots” Chruchill

I’m not supporting Osbourne – but the OECD are out of order. Like the IMF they talk rubbish about ‘solutions to the crisis of capitalism’ – when most intelligent people know there aren’t any.

…and when those solutions don’t work – they flip flop to the other side.

I would declare war on both the OECD and the IMF – they are the current day ‘galactic empire’ and represent the financiers and their interests.

It’s good to see some people on here still have hope of a ‘solution’ – well sorry to dash your hopes but the only ‘solutions’ are either a decade (or more) of depression – or a year of Hyperinflation followed by a decade of ‘trying to get back to normality’

The sooner you accept this the better it will be.

6. Flowerpower

Oh dear, the OECD boss has just been on Sky News to refute Sunny’s interpretation:

No way was there any signal of a change in course. We are continuing to be supportive. We can now say it with an even greater conviction because we just put out our economic outlook yesterday…

7. Bob B

From the ONS figures on business investment in the first quarter just released, it seems that business doesn’t have much confidence that the government is on the right course:

Business investment for the first quarter of 2011 was estimated to be 7.1 per cent lower than the previous quarter and 3.2 cent lower than the same period last year.

The quarterly decrease in business investment was mainly due to private sector non-manufacturing which fell by 8.3 per cent. This was due to decreases in other services, down by 10.5 per cent.
http://www.statistics.gov.uk/cci/nugget.asp?id=258

Private sector non-manufacturing is most of the economy.

As for the OECD changeing its forecast, I’m reminded of that response by Keynes: “When the facts change, I change my mind. What do you do, sir?”


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  7. OECD caught back-tracking on cuts agenda | Liberal Conspiracy

    [...] back-tracking on cuts agenda by Sunny Hundal     May 27, 2011 at 9:22 am We reported yesterday that the OECD was sounding alarm over the UK’s growth slowing [...]

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