Vince Cable, business secretary, has admitted there is “clearly a risk” of the UK entering a triple-dip recession and facing a Japanese-style lost decade of stagnant economic growth.
In an interview with the Observer newspaper, Mr Cable – who is one of the most senior Liberal Democrats in government – was asked whether a triple-dip in the economy was possible. “I always try not to get drawn into forecasting arguments but there clearly is a risk,” he said. “The most likely outcome is that we continue bumping along the bottom”, reflecting the Office of Budget Responsibility’s forecasts.
These comments come after chancellor George Osborne downgraded UK growth prospects in his Autumn Statement, and grim manufacturing figures released at the end of the week stoked fears of further economic contraction.
Mr Cable confirmed there would be a “long hard slog” for several years and that even a return to growth would not provide the hoped-for feelgood factor among the electorate. “Interest rates will go back to normal and that will affect a lot of people whose mortgages are hanging by a thread at the moment,” he said. “Even the recovery is going to be very painful.”
Danny Alexander, the Lib Dem chief secretary to the Treasury, did little to play down these fears when he was interviewed by the BBC’s Andrew Marr on Sunday, admitting it was an “uncertain world”.
“Well, look, the OBR forecast that the final quarter of this year would be negative but that we’d see positive growth slowly returning in every quarter of next year,” Mr Alexander said. “But of course, look, it’s an uncertain world out there, we’re seeing continuing problems in the Eurozone but I’m happy to rest on the OBR’s forecast.””
Conservative ministers in the Treasury, who are trying to reassure the markets after Mr Osborne’s downbeat forecasts raised the prospect of the UK losing its prized triple A rating next year, will not thank the business secretary for airing his views so candidly.
Matthew Hancock, the Tory skills minister who works in Mr Cable’s department, admitted on Sunday that reducing the deficit was proving harder than initially anticipated.
“I think the crucial thing this week that was shown is that we’re making progress,” Mr Hancock told the BCC. “The deficit is coming down, and everybody knows it’s difficult, everybody knows it’s harder than expected at the start.”
“At the start, in 2010, we had the highest deficit in Europe, and we had the highest in the developed world outside of Iceland,” Mr Hancock added. “The astonishing thing is that despite the fact that we were left with the biggest deficit, because we’ve got the political will and the credibility to get it down, we’ve been rewarded – as everybody knows – with very low interest rates at which we can borrow.”
Mr Cable also took the opportunity to hit back on the “appalling stuff” proposed by the Tories for the Autumn statement, including banning under-25s from receiving housing benefit and penalising benefit claimants with more than two children.
The business secretary criticised Mr Osborne’s delivery of measures to cut welfare, accusing the chancellor of “demonising” the jobless. “Most people are out of work through no fault of their own,” he said. “The worst thing you can do is insult them.”