Government cuts risk “crippling” the economy, warns the CIPD

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The Government’s strategy for reducing the deficit risks “crippling the economy for years to come”, the Chartered Institute of Personnel and Development (CIPD) has warned.

The comments came as official figures showed that GDP grew by 0.2% in the second quarter of 2011, following a 0.5% increase during the first three months of the year.

According to the Office for National Statistics (ONS) report, the Royal Wedding bank holiday and the Japanese tsunami were partly to blame for the “modest” growth figures, although it stated that their net impact could not be precisely determined.

However, the CIPD, The Work Foundation and the TUC have claimed that the figures point to a need for the Government to rethink its current strategy for stimulating growth.

The CIPD’s chief economic adviser Dr John Philpott described the low growth figures as “desperately poor”.

“We must be careful to not attach undue weight to excuses about preliminary statistical measurement or the special ‘one-off factors’ highlighted by the ONS,” Philpott explained. “The emerging underlying path of GDP growth and forward looking indicators show that the UK economy is being starved of the demand needed to raise output substantially, create enough jobs to cut unemployment and prevent a further deterioration in the fiscal deficit.

“With the effectiveness of a further bout of quantitative easing far from clear, and even the most growth-friendly supply side measures unlikely to work properly in a demand vacuum, surely the Government must now come up with urgent plans to alter a fiscal policy stance, which mounting evidence suggests the economy simply can’t bear at present.”

Andrew Sissons, researcher at The Work Foundation, added that the figures confirm the “long-standing suspicion” that the recovery is struggling to gain momentum.

Sissons explained: “These results will have serious consequences for the labour market. Over the last year, the economy has created more than 300,000 jobs without any significant growth in output. This jobs recovery is very unlikely to be sustained without much stronger GDP growth over the coming months.”

However, the British Chambers of Commerce (BCC) argued that the figures show the Government is right to persevere with the cuts.

David Kern, chief economist at the BCC, explained: “These figures were slightly worse than our forecast of 0.3%, but they reassure us that the UK recovery is still on course, and fears of a double-dip recession are not justified.

“There is no need to consider changes in fiscal policy or talk about the need for a plan B. However, we mustn’t be complacent. Growth is weak and this is due to both a lack of demand and inadequate supply potential.”

More information on the ONS figures is available on XpertHR’s Employment Intelligence blog.

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