by Rachel Reeves

Throughout the phone hacking scandal, the chancellor has tried to keep his role in the “regrettable” appointment of Andy Coulson as the PM’s director of communications out of the spotlight. Despite being the one who allegedly recommended Coulson’s appointment, Osborne has done his best to bat away any responsibility for his role in that crisis.

Today, as the latest data show that GDP grew by just 0.2% in the second quarter of 2011, the chancellor is no doubt wishing he could be as slippery in evading responsibility for the staggeringly anaemic “recovery” that is now entrenched in the UK.

Growth of 0.2% in the second quarter of this year is a slow-down from growth of 0.5% in the first quarter, which in itself was only just enough to counter the contraction in the economy of 0.5% in the last quarter of 2010. Compare this to Q2 for last year, when the economy, in its third quarter of economic recovery, was growing at 1.1%, thanks to the decisive action from a Labour government that knew a strong recovery was critical to getting the country back on its feet and the deficit down.

Now, as a result of the too far, too fast approach of the government since May 2010, growth has continued to falter, a year and a half after the economy moved into recovery, and the economy is flat-lining. Three years after the peak of GDP before the recession started, output has not managed to recover by even half of the 6.4% that it fell since the first quarter of 2008. This recovery is turning out to be anaemic, as well as historically and internationally weak.

Today’s GDP figure of 0.2% is far below what the treasury needs if the economy is to meet its forecast for growth of 1.7% for this year. And let’s remember, that forecast has already been downgraded three times – the independent office of budget responsibility was forecasting growth of 2.3% for 2011 just a year ago.

City economists have believed this to be an overestimate for some time, and have been cutting their own forecasts month on month, with the consensus falling from 2.1% in February 2010 to 1.4% now.    And just last week, Ernst and Young’s ITEM club cut its forecast for 2011 from 1.8% to 1.4% of GDP.  Not much of an endorsement of the government’s strategy for growth.

It is time that the chancellor realises that deficit reduction without any strategy for growth won’t work in the short-term and will cause long-term damage to the health of the economy too. Far from being the “safe haven from the storm” that Osborne has talked about today – the UK economy is now sitting firmly in stagnant water.

Of course there have been reasons given for these alarmingly low figures. The ONS has said that the royal wedding and the resulting extra bank holiday meant people had more leisure time, and the earthquake and tsunami in Japan may have had an impact too. And then there are the high oil prices that are deterring consumption. But as the ONS has said, these individual impacts are very hard to quantify.

And the fact is that there is always an excuse, a reason for why we are not doing better. Remember the snow? The snow that fell across Europe and the US, Yet while the US, Germany, France and the eurozone as a whole still managed to grow their economies, the UK shrunk by 0.5%.

Yes, there are always reasons that can be given and there will always be factors that may put downward (or indeed upward) pressure on growth, but there is no getting away from the fact that because of this government’s obsession with deficit reduction at any cost, growth in the UK is flat-lining while other countries are on a path of recovery.

The fact is we are falling behind our competitors. Take Germany, which achieved a growth rate of 1.5% in the first quarter of this year, and France where the economic grew by 1%. Snow, high oil prices and holidays all happened there too. The one thing they didn’t have was George Osborne’s economic policies.

Rather than denial, the chancellor needs to take decisive action to steer the economy out of stagnant waters. Instead of blaming the bank holiday, or trying to pass the buck to the bank of England, the government must take responsibility for the anaemic recovery and act now. Their grip on fiscal policy is so stiflingly tight that households and businesses facing persistently high inflation are being squeezed so hard that overall demand is being strangled.

This grip must be loosened in order to let the economy move into recovery. Of course, the question will be how can he afford to do so? But the real question is how can he afford not to? Because if Osborne continues on this course, borrowing will continue to rise as taxation revenues are lower than expected and the welfare bill will rise as people are out of work and businesses struggle to keep going. The fact is that the chancellor’s deficit reduction plan relies on economic recovery – exactly of the sort that, paradoxically, he is quashing. The OBR will be forced to revise growth down again when it reports in the autumn and revise borrowing up because of the economic weakness that is the result of trying too hard to cut spending.

The time has come for the chancellor to stand up and accept that a new course is needed. Growth of just 0.2% in the sixth quarter of a recovery is alarming and should serve as a wake-up call. The chancellor is at the helm and he must accept that he has no choice. For the health and competitiveness of the UK economy, and for the families and businesses who feel that they are still living in a recession he now must steer the UK economy back on to a path of jobs and growth, and, paradoxically, he must accept that this is the only way he can get the deficit down sustainably too.

Rachel Reeves is MP for Leeds West and a shadow pensions minister.

Tags: Growth, growth figures, Osborne, Rachel Reeves, stalled recovery

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