Growth

The UK is in a double-dip recession with last week's revised figures showing the economy shrinking by 0.3% last quarter.

My hunch though is that, the Eurozone crisis aside (a big matter to set aside I admit), the economy will come back faster and more strongly than many predict.

The current economic picture is more nuanced than the growth figures suggest — unemployment fell last month and inflation was sharply down (which should ease pressure on household budgets and so increase consumer demand through increased disposable income).

But why is growth so stubborn? Labour argues that this is due to a lack of spending. They say that what we need is for the spending taps to be re-opened and for the increased demand to push through to production and jobs (which would have the effect of reducing the drain on the exchequer via fewer unemployment claims and an increased tax take from those who get jobs).

This clear-cut Keynesianism is attractive at first glance. However, the reality is that we are currently dancing on an economic pinhead. We fall into the abyss by following Labour's extra spending plans.

The mechanism is simple — the markets decide we have given up on serious debt reduction, they hike up interest rates, we pay more on our debt, business and mortgage costs increase, the economy tumbles.

Our alternative is to keep firm on deficit reduction whatever the growth figures but continue to work on making it easier for companies to do business. If there are to be any policy shifts this is where they must lie — lower business taxes, more flexible employment legislation and a bonfire of business regulations.

To mix metaphors —  the Siren voices of Labour's spend-fest must be resisted, the nettle of supporting business must continue to be grasped.