Comment: There’s more to slowdown than Brexit debate

Is the UK economy slowing because of fears of Brexit or fears of George Osborne’s policies — or maybe just because we are at that stage of the economic cycle? That will be the judgment we should look for on Thursday from the Bank of England’s latest Inflation Report.

Its origins lay in fears of runaway inflation but it has become a report not so much about inflation, or indeed the lack of it, but rather about growth. It used to be eagerly awaited, as it would signal what might happen to interest rates — it coincides with a meeting of the Bank’s monetary policy committee.

Nowadays it is usually a dull affair — there has been no change in rates for years and won’t be one for a while yet. But this time it will be given extra spice by two things: the slowdown in the economy and the possibility of Brexit. The slowdown is real. Indeed, some economists — the team at Barclays Bank, for example — think there will be no growth in the UK economy this quarter. Hiring is slackening, decisions are being postponed. But there are, as so often in economics, two explanations, maybe three.

One is fear of Brexit and there will be a lot of speculation as to what the Bank might do in the event of a Leave vote next month. Cut rates, which are already at rock bottom, and hit savers even more? Is the Bank, which is supposed to be politically independent, quietly trying to massage opinion in favour of Remain?

Or is the main reason for the slowdown quite different? Is it instead fears by business of the additional costs of hiring people being lumped onto it, not just from the living wage but also from pension legislation, the apprenticeship levy, the additional charge on non-EU people who come in on working visas and so on.

If so, this is bad news not just for jobseekers but also for the Chancellor. Actually slower growth, whatever the cause, is bad news for George Osborne. It puts into question his boast that Britain is the fastest-growing large economy. It isn’t any more.

Or, maybe there is a possible third reason, which is that our recovery, like that of the US and Germany, is pretty mature. With unemployment in all three countries around 5%, there may be a little slack in the labour market — I personally think there is — but can’t be that much. There were disappointing figures on US job creation last Friday, and the dreaded R-word — recession — has started to appear again in the media. This week will be spent digesting that, with optimists looking for comfort from retail sales figures. Maybe the weaker dollar will put more demand into the economy, but that is a big maybe.

At any rate, whatever the Bank concludes, it will be an embarrassing week for Osborne. On Friday, figures for the eurozone in the first quarter should confirm that the single currency bloc grew by 0.6%. Remember that UK growth was estimated at 0.4%. We already have some eurozone members growing faster than that, including France. So the supposedly sluggish eurozone, despite all the things going wrong there, seems to have performed better than the apparently vibrant UK.

True, these are preliminary numbers, and it is only one quarter. Of course, the eurozone faces other problems. Thus today the so-called eurogroup, which scrutinises what is happening in Greece, is having a special meeting in Brussels. The sole item on the agenda is how the country is performing relative to the targets imposed on it.

It is unlikely to be a happy tale, and while things will be patched up until after the UK referendum, it will be a reminder that Greece’s fate within the eurozone is far from secure. But you can see the stories that Europe is growing faster than Britain, and you can see how the Remain camp will spin that one.

Moral: whenever a Chancellor claims that the economy is the fastest-growing one in the G7, or as Gordon Brown used to boast, had had the longest expansion ever in British history, it is time to head for the hills.