Chancellor will warn in speech that economic recovery is not secured because UK still too reliant on consumers and City
The British economy is “still too unbalanced” and the recovery has yet to be fully secured, George Osborne will warn in a speech in Hong Kong on Thursday.
Amid fears in Whitehall that the government may have appeared complacent as the recovery started to take hold last year, the chancellor will say that it would be wrong to say “job done” because Britain is still too reliant on consumer spending and the City of London.
In a speech to business leaders, the chancellor will say: “I’m now the first to say that the recovery is not yet secure and our economy is still too unbalanced. We cannot rely on consumers alone for our economic growth, as we did in previous decades. And we cannot put all our chips on the success of the City of London, as my predecessors did. Britain is not investing enough. Britain is not exporting enough.”
It chimes with the remarks by the Bank of England governor, Mark Carney, who indicated last week that low interest rates would remain in place until after next year’s general election as he said that the recovery was “neither balanced nor sustainable”. Speaking at the launch of the Bank of England’s quarterly inflation report, Carney said: “A few quarters of above-trend growth driven by household spending are a good start but they aren’t sufficient for sustained momentum.”
Osborne will make clear in his speech that he shares the governor’s view – consumer spending is driving the recovery and it will only become a sustained one when business investment picks up. The chancellor will say: “There are encouraging signs. Both business investment and exports are forecast to grow. But we can’t be passive observers of the forecasts. We need to roll up our sleeves, get to work and make it happen.”
Osborne, who is stopping off in Hong Kong en route to Australia for a meeting of G20 finance ministers, will seek in his speech to draw a contrast with Labour.
He will criticise those who believe that the recovery means that the deficit reduction plan can be slowed. Osborne believes his plan to create an overall budget surplus by the end of the next parliament – in contrast to Labour’s plan to run a surplus on just the current, and not the capital budget – will involve tougher choices.
He will say: “Some in Britain might be tempted to say: job done, let’s avoid more hard decisions. That would be a huge mistake. Abandon the plan and we abandon the progress we’ve made and go back to square one.
“I have never been a chancellor who has run away from confronting our problems. I’ve never been afraid to level with people about the hard truths. I said that we have to go on dealing with our debt and our deficit – and we have no choice but to do so.”
Osborne will also say that his plan to rebalance the economy away from the City contrasts with the last Labour government, which relied, he believes, on financial services to fund relatively high spending.
“I said recovery was not enough, we needed to avoid the mistakes of the past,” he will say. That view will be disputed by Labour, which says the coalition abandoned the “industrial activism” championed by Lord Mandelson, who tried to encourage new areas of economic growth.
Treasury sources said that the speech was designed to highlight the global risks to economic recovery which are posed by emerging markets such as Venezuela, Turkey, Ukraine and Indonesia. In this context Osborne believes it is necessary to be upfront about the challenges facing the British economy.
But the chancellor has also had to recover ground after he appeared to give the impression, in a speech last September, that the recovery was fully established. Chris Leslie, the shadow chief secretary, said: “George Osborne is finally recognising that the recovery, which he choked off in 2010, is still not secure or balanced. But he has not yet admitted that working people are facing a cost-of-living crisis and are £1600 a year worse off since he became Chancellor.
“We need action to secure a stronger recovery and earn our way to higher living standards for all. That’s why we have called for action to boost housing supply, reform of our banks and energy markets, an expansion of free childcare to make work pay and a compulsory jobs guarantee for young people and the long-term unemployed.”