A Victory for Keynesianism?

According to the Office for National Statistics, economic growth between April and June this year was the fastest rate in nearly a decade. GDP rose by 1.2% during this period – primarily due to an 8.5% increase in construction output and a 0.7% increase in consumer spending. But don’t send off the thank you cards to Mr Cameron and Mr Clegg just yet, because the Coalition’s Emergency Budget didn’t take place until 22 June.

The recent economic growth is significant – not because it guarantees recovery – but because it suggests that Labour’s policy to invest rather than cut was working. The economic growth of the last quarter is underpinned by a 0.3% advance in Government spending. This includes £986m towards transport projects and £480m towards new school buildings – most of which has been abandoned by the Coalition. A large proportion of private construction relies on state subsidy and public contracts – so where else is the stimulus going to come from? Cameron is desperately trying to encourage international trade to fill this government void – but the international economic situation is far from stable – whilst Cameron’s diplomatic faux-pas will probably undermine any meaningful discussions, anyway.

Furthermore, an increase in consumer confidence is contributing to the economic recovery, but what will happen to confidence when the cuts of the Comprehensive Spending Review come into effect, VAT rises, public sector redundancies hit and unemployment increases?

The Coalition recognise that the economy is in for a “bumpy ride” but they seem intent on steamrollering through their regressive economic policies. Perhaps economic fragility – and even a possible ‘double-dip’ recession – is a price worth paying to reduce the role of the state. But for all those interested in economic recovery rather than political point-scoring, maybe Labour’s spending wasn’t so “crazy” after all.