Who benefits politically from a weak economy?

Figures showing the UK economy grew by 0.3% in the final quarter of 2009, rather than by 0.1% as previously estimated, are little help to either of the two main political parties in making the case for their economic policies ahead of the election.

Labour will be relieved that the economy has emerged from recession but reluctant to make too much of the stronger growth. In particular, they will be aware that growth in the first quarter of 2010 could disappoint due to the bad weather we have been experiencing and the likelihood that the increase in the main rate of VAT from 15 to 17.5% in January led to some spending being brought forward into the final months of 2009. And the first estimate of Q1 GDP will be published on 23rd April – probably right in the middle of the election campaign. Labour are also keen to emphasise that the fragility of the economic recovery makes it unwise to cut government borrowing by more than set out in last year’s Pre-Budget Report.

The Conservatives have stressed that they would take the health of the economy into account when deciding the scale of any spending cuts and tax increases to be included in the budget measures they hope to introduce within 50 days of winning a general election. But, as George Osborne made clear again in his Mais Lecture on 24 February, they would take steps to bring government borrowing down faster in 2010/11 than set out in the current Government’s plans. Whatever the economic rationale behind such a move, for this to seem like a sensible course of action the economy needs to be growing at something more than a snail’s pace.

So, while very low – or even zero – growth in the first quarter of 2010 would be bad news for Labour, it will be hard for the Conservatives to capitalise because it also throws into question one of their key economic policies. Perhaps the Liberal democrats would be the beneficiaries – not regarded as responsible for the recession and not advocates of early cuts in government borrowing.

Tony Dolphin, senior economist, ippr